How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Univar Solutions Inc (NYSE:UNVR) and determine whether hedge funds had an edge regarding this stock.
Univar Solutions Inc (NYSE:UNVR) has experienced a decrease in enthusiasm from smart money of late. Univar Solutions Inc (NYSE:UNVR) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistics is 43. There were 32 hedge funds in our database with UNVR holdings at the end of March. Our calculations also showed that UNVR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Mason Hawkins of Southeastern Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we're going to check out the key hedge fund action encompassing Univar Solutions Inc (NYSE:UNVR).
How are hedge funds trading Univar Solutions Inc (NYSE:UNVR)?
At second quarter's end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in UNVR over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Univar Solutions Inc (NYSE:UNVR) was held by FPR Partners, which reported holding $195 million worth of stock at the end of September. It was followed by First Pacific Advisors LLC with a $160.4 million position. Other investors bullish on the company included Lyrical Asset Management, Iridian Asset Management, and Southeastern Asset Management. In terms of the portfolio weights assigned to each position Atlantic Investment Management allocated the biggest weight to Univar Solutions Inc (NYSE:UNVR), around 12.91% of its 13F portfolio. Inherent Group is also relatively very bullish on the stock, setting aside 6.78 percent of its 13F equity portfolio to UNVR.
Because Univar Solutions Inc (NYSE:UNVR) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few fund managers that elected to cut their full holdings in the second quarter. At the top of the heap, Israel Englander's Millennium Management cut the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $10.1 million in stock, and Stuart J. Zimmer's Zimmer Partners was right behind this move, as the fund dropped about $8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Univar Solutions Inc (NYSE:UNVR) but similarly valued. These stocks are National Beverage Corp. (NASDAQ:FIZZ), Corporate Office Properties Trust (NYSE:OFC), Blackbaud, Inc. (NASDAQ:BLKB), ALLETE Inc (NYSE:ALE), AAON, Inc. (NASDAQ:AAON), Acacia Communications, Inc. (NASDAQ:ACIA), and Cimarex Energy Co (NYSE:XEC). This group of stocks' market valuations resemble UNVR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIZZ,21,259591,1 OFC,20,209407,3 BLKB,19,95711,-3 ALE,25,119344,7 AAON,15,26745,4 ACIA,34,959611,12 XEC,39,556800,4 Average,24.7,318173,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $920 million in UNVR's case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand AAON, Inc. (NASDAQ:AAON) is the least popular one with only 15 bullish hedge fund positions. Univar Solutions Inc (NYSE:UNVR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UNVR is 59. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately UNVR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on UNVR were disappointed as the stock returned 7.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.