"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Darling Ingredients Inc. (NYSE:DAR).
At the moment there are several methods stock market investors use to analyze their holdings. A pair of the most under-the-radar methods are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the best money managers can outperform the S&P 500 by a solid amount (see the details here).
We're going to check out the latest hedge fund action surrounding Darling Ingredients Inc. (NYSE:DAR).
How are hedge funds trading Darling Ingredients Inc. (NYSE:DAR)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in DAR over the last 14 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Point72 Asset Management was the largest shareholder of Darling Ingredients Inc. (NYSE:DAR), with a stake worth $92 million reported as of the end of September. Trailing Point72 Asset Management was Fisher Asset Management, which amassed a stake valued at $47.8 million. Impax Asset Management, GMT Capital, and Inherent Group were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Darling Ingredients Inc. (NYSE:DAR) has faced a decline in interest from the smart money, we can see that there was a specific group of money managers that decided to sell off their entire stakes by the end of the third quarter. It's worth mentioning that Joshua Kaufman and Craig Nerenberg's Brenner West Capital Partners dropped the largest stake of the 700 funds followed by Insider Monkey, worth about $66.2 million in stock. Jeffrey Gates's fund, Gates Capital Management, also sold off its stock, about $27.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Darling Ingredients Inc. (NYSE:DAR) but similarly valued. These stocks are HUYA Inc. (NYSE:HUYA), Commscope Holding Company Inc (NASDAQ:COMM), GW Pharmaceuticals plc (NASDAQ:GWPH), and Louisiana-Pacific Corporation (NYSE:LPX). This group of stocks' market valuations resemble DAR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HUYA,16,150270,-1 COMM,28,887562,-3 GWPH,25,369097,7 LPX,31,426583,3 Average,25,458378,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $261 million in DAR's case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 16 bullish hedge fund positions. Darling Ingredients Inc. (NYSE:DAR) is not the least popular stock in this group but hedge fund interest is still below average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately DAR wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); DAR investors were disappointed as the stock returned 12.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.