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 750 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 Xerox Corporation (NYSE:XRX).
Xerox Corporation (NYSE:XRX) was in 44 hedge funds' portfolios at the end of the fourth quarter of 2018. XRX has seen an increase in hedge fund sentiment recently. There were 37 hedge funds in our database with XRX holdings at the end of September. Overall hedge fund sentiment towards Xerox has never been this bullish. This is usually a bullish sign. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. Similarly EEFT returned more than 40% after hedge fund sentiment hit its all time high at the end of December. We observed similar performances from OKTA, Twilio, CCK, MSCI, MASI and Progressive Corporation (PGR); these stocks returned 37%, 37%, 35%, 29%, 28% and 27% respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management (BAM), Atlassian Corporation (TEAM), RCL, MTB, VAR, RNG, FIVE, ECA, SBNY, KL and CRH also hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5-3 months of this year.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's analyze the latest hedge fund action encompassing Xerox Corporation (NYSE:XRX).
How have hedgies been trading Xerox Corporation (NYSE:XRX)?
Heading into the first quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards XRX over the last 14 quarters. 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, Icahn Capital LP held the most valuable stake in Xerox Corporation (NYSE:XRX), which was worth $463.5 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $109.8 million worth of shares. Moreover, Kavi Asset Management, Mason Capital Management, and York Capital Management were also bullish on Xerox Corporation (NYSE:XRX), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key money managers have jumped into Xerox Corporation (NYSE:XRX) headfirst. Falcon Edge Capital, managed by Richard Gerson and Navroz D. Udwadia, initiated the most outsized position in Xerox Corporation (NYSE:XRX). Falcon Edge Capital had $17.8 million invested in the company at the end of the quarter. Charles Lemonides's Valueworks LLC also made a $9.5 million investment in the stock during the quarter. The other funds with brand new XRX positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Dmitry Balyasny's Balyasny Asset Management, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.
Let's go over hedge fund activity in other stocks similar to Xerox Corporation (NYSE:XRX). We will take a look at ICU Medical, Inc. (NASDAQ:ICUI), NewMarket Corporation (NYSE:NEU), Six Flags Entertainment Corp (NYSE:SIX), and Casey's General Stores, Inc. (NASDAQ:CASY). This group of stocks' market caps resemble XRX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ICUI,20,327916,-15 NEU,16,64634,3 SIX,23,720468,-2 CASY,18,55523,0 Average,19.25,292135,-3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $889 million in XRX's case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand NewMarket Corporation (NYSE:NEU) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Xerox Corporation (NYSE:XRX) is more popular among hedge funds. Hedge funds moved into Xerox at the right time as the stock returned 72.2% in 2019 through April 8th and outperformed the market by 56 percentage points. Sometimes it pays big to follow the footsteps of hedge funds.
Disclosure: None. This article was originally published at Insider Monkey.