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Should I Avoid HollyFrontier Corporation (HFC)?

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·6 min read
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  • HFC

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not HollyFrontier Corporation (NYSE:HFC) makes for a good investment right now.

Is HollyFrontier Corporation (NYSE:HFC) a buy right now? Hedge funds were becoming less hopeful. The number of bullish hedge fund bets dropped by 14 in recent months. HollyFrontier Corporation (NYSE:HFC) was in 20 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 40. Our calculations also showed that HFC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Blair Levinsky of Waratah Capital Advisors
Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a glance at the fresh hedge fund action encompassing HollyFrontier Corporation (NYSE:HFC).

Do Hedge Funds Think HFC Is A Good Stock To Buy Now?

At first quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -41% from the fourth quarter of 2020. On the other hand, there were a total of 24 hedge funds with a bullish position in HFC a year ago. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in HollyFrontier Corporation (NYSE:HFC), which was worth $57.7 million at the end of the fourth quarter. On the second spot was Two Sigma Advisors which amassed $34.8 million worth of shares. D E Shaw, Citadel Investment Group, and Encompass Capital Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hi-Line Capital Management allocated the biggest weight to HollyFrontier Corporation (NYSE:HFC), around 1.58% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, dishing out 0.78 percent of its 13F equity portfolio to HFC.

Seeing as HollyFrontier Corporation (NYSE:HFC) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of fund managers that elected to cut their entire stakes in the first quarter. At the top of the heap, Michael Gelband's ExodusPoint Capital cut the largest investment of all the hedgies followed by Insider Monkey, valued at an estimated $12.1 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dropped about $10.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 14 funds in the first quarter.

Let's go over hedge fund activity in other stocks similar to HollyFrontier Corporation (NYSE:HFC). These stocks are Foot Locker, Inc. (NYSE:FL), Kodiak Sciences Inc (NASDAQ:KOD), Pilgrim's Pride Corporation (NASDAQ:PPC), Corelogic Inc (NYSE:CLGX), Regal Beloit Corporation (NYSE:RBC), Shoals Technologies Group, Inc. (NASDAQ:SHLS), and Inspire Medical Systems, Inc. (NYSE:INSP). All of these stocks' market caps are similar to HFC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FL,28,332073,2 KOD,17,1806649,-3 PPC,16,122066,-1 CLGX,49,1690451,3 RBC,30,358632,5 SHLS,22,323958,22 INSP,28,431163,1 Average,27.1,723570,4.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $724 million. That figure was $157 million in HFC's case. Corelogic Inc (NYSE:CLGX) is the most popular stock in this table. On the other hand Pilgrim's Pride Corporation (NASDAQ:PPC) is the least popular one with only 16 bullish hedge fund positions. HollyFrontier Corporation (NYSE:HFC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HFC is 12.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately HFC wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HFC investors were disappointed as the stock returned -19.5% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.