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 Newmont Corporation (NYSE:NEM) and determine whether hedge funds had an edge regarding this stock.
Is Newmont Corporation (NYSE:NEM) ready to rally soon? Hedge funds were in a bullish mood. The number of bullish hedge fund bets moved up by 12 recently. Newmont Corporation (NYSE:NEM) was in 55 hedge funds' portfolios at the end of June. The all time high for this statistics is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NEM 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.
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 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 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 stocks that are in our short portfolio.
James Dinan of York Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let's take a glance at the new hedge fund action encompassing Newmont Corporation (NYSE:NEM).
Hedge fund activity in Newmont Corporation (NYSE:NEM)
At second quarter's end, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the first quarter of 2020. By comparison, 41 hedge funds held shares or bullish call options in NEM a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in Newmont Corporation (NYSE:NEM), worth close to $793.8 million, amounting to 0.7% of its total 13F portfolio. On Renaissance Technologies's heels is GQG Partners, managed by Rajiv Jain, which holds a $262 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Other peers with similar optimism comprise Ken Griffin's Citadel Investment Group, Cliff Asness's AQR Capital Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Heathbridge Capital Management allocated the biggest weight to Newmont Corporation (NYSE:NEM), around 9.47% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, earmarking 8.72 percent of its 13F equity portfolio to NEM.
As industrywide interest jumped, specific money managers were leading the bulls' herd. GQG Partners, managed by Rajiv Jain, created the largest position in Newmont Corporation (NYSE:NEM). GQG Partners had $262 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $171 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Caldwell's Chiron Investment Management, James Dinan's York Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Newmont Corporation (NYSE:NEM) but similarly valued. We will take a look at Deere & Company (NYSE:DE), Mercadolibre Inc (NASDAQ:MELI), Kimberly Clark Corporation (NYSE:KMB), ABB Ltd (NYSE:ABB), Spotify Technology S.A. (NYSE:SPOT), Dollar General Corp. (NYSE:DG), and Barrick Gold Corporation (NYSE:GOLD). This group of stocks' market values are closest to NEM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DE,32,839882,-12 MELI,60,4427510,0 KMB,37,1173794,-9 ABB,10,346451,0 SPOT,36,1882209,-4 DG,67,2296237,7 GOLD,52,3360658,-2 Average,42,2046677,-2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $2047 million. That figure was $2418 million in NEM's case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 10 bullish hedge fund positions. Newmont Corporation (NYSE:NEM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NEM is 79.5. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately NEM wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NEM were disappointed as the stock returned 5.6% 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.