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Hedge Funds Aren’t Crazy About Valero Energy Corporation (VLO) Anymore

Abigail Fisher

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have gone over 730 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 28th. In this article we look at what those investors think of Valero Energy Corporation (NYSE:VLO).

Is Valero Energy Corporation (NYSE:VLO) a healthy stock for your portfolio? Money managers are taking a pessimistic view. The number of long hedge fund positions were cut by 5 recently. Our calculations also showed that VLO isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

VLO_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the key hedge fund action surrounding Valero Energy Corporation (NYSE:VLO).

How have hedgies been trading Valero Energy Corporation (NYSE:VLO)?

Heading into the third quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in VLO a year ago. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

GOTHAM ASSET MANAGEMENT

More specifically, AQR Capital Management was the largest shareholder of Valero Energy Corporation (NYSE:VLO), with a stake worth $184.1 million reported as of the end of March. Trailing AQR Capital Management was Adage Capital Management, which amassed a stake valued at $139.3 million. D E Shaw, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Valero Energy Corporation (NYSE:VLO) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain "tier" of hedgies that decided to sell off their positions entirely by the end of the second quarter. Interestingly, Todd J. Kantor's Encompass Capital Advisors cut the largest investment of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $45.6 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund cut about $43.2 million worth. These moves are important to note, as total hedge fund interest dropped by 5 funds by the end of the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Valero Energy Corporation (NYSE:VLO) but similarly valued. These stocks are Red Hat, Inc. (NYSE:RHT), Carnival Corporation & Plc (NYSE:CCL), Barclays PLC (NYSE:BCS), and Canadian Pacific Railway Limited (NYSE:CP). All of these stocks' market caps resemble VLO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RHT,61,6666536,-5 CCL,36,670965,8 BCS,12,130909,2 CP,30,2313888,0 Average,34.75,2445575,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $2446 million. That figure was $792 million in VLO's case. Red Hat, Inc. (NYSE:RHT) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 12 bullish hedge fund positions. Valero Energy Corporation (NYSE:VLO) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VLO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VLO were disappointed as the stock returned 0.7% during the third quarter 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.

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