How do we determine whether Intrepid Potash, Inc. (NYSE:IPI) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Intrepid Potash, Inc. (NYSE:IPI) a sound stock to buy now? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund bets shrunk by 2 in recent months. Our calculations also showed that IPI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's view the new hedge fund action regarding Intrepid Potash, Inc. (NYSE:IPI).
What have hedge funds been doing with Intrepid Potash, Inc. (NYSE:IPI)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IPI over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Chuck Royce's Royce & Associates has the largest position in Intrepid Potash, Inc. (NYSE:IPI), worth close to $7.1 million, amounting to 0.1% of its total 13F portfolio. Coming in second is Prescott Group Capital Management, managed by Phil Frohlich, which holds a $5.3 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Other peers that hold long positions include Scott Wallace's Wallace Capital Management, Paul Marshall and Ian Wace's Marshall Wace and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Intrepid Potash, Inc. (NYSE:IPI), around 1.62% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, dishing out 0.3 percent of its 13F equity portfolio to IPI.
Seeing as Intrepid Potash, Inc. (NYSE:IPI) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few funds that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Perella Weinberg Partners dumped the biggest position of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $4.1 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $0.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Intrepid Potash, Inc. (NYSE:IPI) but similarly valued. We will take a look at Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), Weidai Ltd. (NYSE:WEI), Carrols Restaurant Group, Inc. (NASDAQ:TAST), and SpartanNash Company (NASDAQ:SPTN). This group of stocks' market caps resemble IPI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RRGB,15,46746,3 WEI,1,240,0 TAST,16,84722,-4 SPTN,18,39897,-2 Average,12.5,42901,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $20 million in IPI's case. SpartanNash Company (NASDAQ:SPTN) is the most popular stock in this table. On the other hand Weidai Ltd. (NYSE:WEI) is the least popular one with only 1 bullish hedge fund positions. Intrepid Potash, Inc. (NYSE:IPI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately IPI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on IPI were disappointed as the stock returned -30.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.