Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Black Stone Minerals LP (NYSE:BSM) from the perspective of those elite funds.
Black Stone Minerals LP (NYSE:BSM) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Louisiana-Pacific Corporation (NYSE:LPX), CVB Financial Corp. (NASDAQ:CVBF), and Gates Industrial Corporation plc (NYSE:GTES) to gather more data points. Our calculations also showed that BSM 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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.
[caption id="attachment_262336" align="aligncenter" width="450"] J. Carlo Cannell of Cannell Capital[/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. We're going to view the new hedge fund action encompassing Black Stone Minerals LP (NYSE:BSM).
How are hedge funds trading Black Stone Minerals LP (NYSE:BSM)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BSM over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Murray Stahl's Horizon Asset Management has the number one position in Black Stone Minerals LP (NYSE:BSM), worth close to $4.4 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish comprise J. Carlo Cannell's Cannell Capital, Matthew Hulsizer's PEAK6 Capital Management and Paul Marshall and Ian Wace's Marshall Wace. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to Black Stone Minerals LP (NYSE:BSM), around 0.24% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to BSM.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Black Stone Minerals LP (NYSE:BSM) but similarly valued. We will take a look at Louisiana-Pacific Corporation (NYSE:LPX), CVB Financial Corp. (NASDAQ:CVBF), Gates Industrial Corporation plc (NYSE:GTES), and SkyWest, Inc. (NASDAQ:SKYW). All of these stocks' market caps are similar to BSM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LPX,31,531921,4 CVBF,12,43719,0 GTES,14,50130,1 SKYW,15,177096,2 Average,18,200717,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $8 million in BSM's case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Black Stone Minerals LP (NYSE:BSM) is even less popular than CVBF. Hedge funds dodged a bullet by taking a bearish stance towards BSM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BSM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BSM investors were disappointed as the stock returned -14.3% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.