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Hedge Funds Aren’t Crazy About International Paper Company (IP) Anymore

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In this article you are going to find out whether hedge funds think International Paper Company (NYSE:IP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

International Paper Company (NYSE:IP) investors should pay attention to a decrease in support from the world's most elite money managers in recent months. International Paper Company (NYSE:IP) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistic is 36. There were 36 hedge funds in our database with IP holdings at the end of March. Our calculations also showed that IP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

David Harding
David Harding

David Harding of Winton Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 review the recent hedge fund action regarding International Paper Company (NYSE:IP).

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

At Q2's end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IP over the last 24 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in International Paper Company (NYSE:IP), which was worth $48 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $35.7 million worth of shares. Levin Easterly Partners, D E Shaw, and Citadel Investment Group 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 Appian Way Asset Management allocated the biggest weight to International Paper Company (NYSE:IP), around 9.5% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, dishing out 3.71 percent of its 13F equity portfolio to IP.

Judging by the fact that International Paper Company (NYSE:IP) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers who sold off their positions entirely last quarter. At the top of the heap, Thomas E. Claugus's GMT Capital dumped the largest stake of the 750 funds watched by Insider Monkey, totaling about $7.9 million in stock, and Renaissance Technologies was right behind this move, as the fund sold off about $7 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to International Paper Company (NYSE:IP). We will take a look at Baker Hughes Company (NYSE:BKR), AmerisourceBergen Corporation (NYSE:ABC), Splunk Inc (NASDAQ:SPLK), Canon Inc. (NYSE:CAJ), Fortive Corporation (NYSE:FTV), McCormick & Company, Incorporated (NYSE:MKC), and Cerner Corporation (NASDAQ:CERN). This group of stocks' market values are closest to IP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKR,40,1012638,-2 ABC,43,1005836,0 SPLK,47,1185992,6 CAJ,8,53729,-1 FTV,31,2235231,4 MKC,34,2032436,-1 CERN,38,1394559,-2 Average,34.4,1274346,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $1274 million. That figure was $210 million in IP's case. Splunk Inc (NASDAQ:SPLK) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. International Paper Company (NYSE:IP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IP is 55.3. 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 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately IP wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); IP investors were disappointed as the stock returned -7.4% since the end of June (through 10/15) 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.