We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Enerpac Tool Group Corp. (NYSE:EPAC).
Enerpac Tool Group Corp. (NYSE:EPAC) has experienced an increase in enthusiasm from smart money of late. EPAC was in 20 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 11 hedge funds in our database with EPAC holdings at the end of the previous quarter. Our calculations also showed that EPAC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_340075" align="aligncenter" width="400"] Mason Hawkins of Southeastern Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a peek at the recent hedge fund action encompassing Enerpac Tool Group Corp. (NYSE:EPAC).
Hedge fund activity in Enerpac Tool Group Corp. (NYSE:EPAC)
At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 82% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EPAC over the last 18 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Enerpac Tool Group Corp. (NYSE:EPAC) was held by Southeastern Asset Management, which reported holding $153.4 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $103.9 million position. Other investors bullish on the company included Renaissance Technologies, Cove Street Capital, and SG Capital Management. In terms of the portfolio weights assigned to each position Southeastern Asset Management allocated the biggest weight to Enerpac Tool Group Corp. (NYSE:EPAC), around 2.56% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 1.58 percent of its 13F equity portfolio to EPAC.
As one would reasonably expect, specific money managers were breaking ground themselves. SG Capital Management, managed by Ken Grossman and Glen Schneider, established the most valuable position in Enerpac Tool Group Corp. (NYSE:EPAC). SG Capital Management had $7.6 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $4.8 million position during the quarter. The other funds with brand new EPAC positions are Paul Marshall and Ian Wace's Marshall Wace LLP, D. E. Shaw's D E Shaw, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks similar to Enerpac Tool Group Corp. (NYSE:EPAC). We will take a look at Studio City International Holdings Limited (NYSE:MSC), ForeScout Technologies, Inc. (NASDAQ:FSCT), Kronos Worldwide, Inc. (NYSE:KRO), and SciPlay Corporation (NASDAQ:SCPL). This group of stocks' market valuations match EPAC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSC,4,239381,0 FSCT,21,419129,2 KRO,13,72839,4 SCPL,15,101164,-2 Average,13.25,208128,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $314 million in EPAC's case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 4 bullish hedge fund positions. Enerpac Tool Group Corp. (NYSE:EPAC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately EPAC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EPAC were disappointed as the stock returned -32.2% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.