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Hedge Funds Are Cashing Out Of Valero Energy Corporation (VLO)

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The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Valero Energy Corporation (NYSE:VLO).

Is Valero Energy Corporation (NYSE:VLO) a great investment right now? The best stock pickers were becoming less hopeful. The number of bullish hedge fund bets shrunk by 3 lately. Valero Energy Corporation (NYSE:VLO) was in 38 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 56. Our calculations also showed that VLO 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.

Paul Singer ELLIOTT MANAGEMENT
Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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. Now let's take a look at the recent hedge fund action encompassing Valero Energy Corporation (NYSE:VLO).

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

Heading into the third quarter of 2021, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the first quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in VLO a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Elliott Investment Management held the most valuable stake in Valero Energy Corporation (NYSE:VLO), which was worth $156.2 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $61.9 million worth of shares. Citadel Investment Group, SIR Capital Management, and Adage Capital Management 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 SIR Capital Management allocated the biggest weight to Valero Energy Corporation (NYSE:VLO), around 5.24% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, setting aside 2.53 percent of its 13F equity portfolio to VLO.

Because Valero Energy Corporation (NYSE:VLO) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there were a few funds that elected to cut their full holdings by the end of the second quarter. It's worth mentioning that Brandon Haley's Holocene Advisors said goodbye to the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth close to $47.9 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $34.1 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Valero Energy Corporation (NYSE:VLO) but similarly valued. These stocks are Liberty Broadband Corp (NASDAQ:LBRDA), BeiGene, Ltd. (NASDAQ:BGNE), Skyworks Solutions Inc (NASDAQ:SWKS), Li Auto Inc. (NASDAQ:LI), Chunghwa Telecom Co., Ltd (NYSE:CHT), Southwest Airlines Co. (NYSE:LUV), and Carnival Corporation & plc (NYSE:CCL). All of these stocks' market caps are closest to VLO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LBRDA,28,904867,5 BGNE,21,6192135,2 SWKS,37,924180,4 LI,20,457452,2 CHT,7,164618,4 LUV,49,926293,-3 CCL,31,456173,-13 Average,27.6,1432245,0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $1432 million. That figure was $259 million in VLO's case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 7 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. Our overall hedge fund sentiment score for VLO is 59.3. 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 positive signal but 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 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately VLO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on VLO were disappointed as the stock returned 1.1% since the end of June (through 10/11) 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 many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.