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Do Hedge Funds Love Sensient Technologies Corporation (SXT)?

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Debasis Saha
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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Sensient Technologies Corporation (NYSE:SXT), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Sensient Technologies Corporation (NYSE:SXT) was in 15 hedge funds' portfolios at the end of September. SXT has seen an increase in enthusiasm from smart money of late. There were 12 hedge funds in our database with SXT positions at the end of the previous quarter. Our calculations also showed that SXT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Mario Gabelli
Mario Gabelli

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the fresh hedge fund action regarding Sensient Technologies Corporation (NYSE:SXT).

Hedge fund activity in Sensient Technologies Corporation (NYSE:SXT)

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the second quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in SXT a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SXT A Good Stock To Buy?
Is SXT A Good Stock To Buy?

Among these funds, GAMCO Investors held the most valuable stake in Sensient Technologies Corporation (NYSE:SXT), which was worth $39.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $7.8 million worth of shares. Echo Street Capital Management, Millennium Management, and Holocene Advisors 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 GAMCO Investors allocated the biggest weight to Sensient Technologies Corporation (NYSE:SXT), around 0.33% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to SXT.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Renaissance Technologies, established the most outsized position in Sensient Technologies Corporation (NYSE:SXT). Renaissance Technologies had $7.8 million invested in the company at the end of the quarter. Greg Poole's Echo Street Capital Management also made a $6.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp and David Harding's Winton Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Sensient Technologies Corporation (NYSE:SXT) but similarly valued. These stocks are LiveRamp Holdings, Inc. (NYSE:RAMP), Global Blood Therapeutics Inc (NASDAQ:GBT), International Game Technology PLC (NYSE:IGT), and TC Pipelines, LP (NYSE:TCP). This group of stocks' market valuations are similar to SXT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RAMP,17,199071,-5 GBT,24,543271,-6 IGT,27,234121,-3 TCP,5,17286,0 Average,18.25,248437,-3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $69 million in SXT's case. International Game Technology PLC (NYSE:IGT) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 5 bullish hedge fund positions. Sensient Technologies Corporation (NYSE:SXT) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SXT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SXT investors were disappointed as the stock returned -7.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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