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Hedge Funds Are Selling Albemarle Corporation (ALB)

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Albemarle Corporation (NYSE:ALB).

Is Albemarle Corporation (NYSE:ALB) undervalued? Prominent investors are in a bearish mood. The number of long hedge fund positions decreased by 1 recently. Our calculations also showed that ALB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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.

[caption id="attachment_30602" align="aligncenter" width="489"] Philippe Laffont of Coatue Management[/caption]

COATUE MANAGEMENT

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. We're going to analyze the latest hedge fund action regarding Albemarle Corporation (NYSE:ALB).

How are hedge funds trading Albemarle Corporation (NYSE:ALB)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALB over the last 17 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Albemarle Corporation (NYSE:ALB) was held by Coatue Management, which reported holding $48.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $42.9 million position. Other investors bullish on the company included Moore Global Investments, PEAK6 Capital Management, and HBK Investments. In terms of the portfolio weights assigned to each position Beech Hill Partners allocated the biggest weight to Albemarle Corporation (NYSE:ALB), around 0.99% of its 13F portfolio. Moore Global Investments is also relatively very bullish on the stock, designating 0.67 percent of its 13F equity portfolio to ALB.

Because Albemarle Corporation (NYSE:ALB) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who sold off their entire stakes heading into Q4. At the top of the heap, Robert Polak's Anchor Bolt Capital dropped the largest investment of the 750 funds watched by Insider Monkey, valued at close to $20.9 million in stock, and Minhua Zhang's Weld Capital Management was right behind this move, as the fund said goodbye to about $3.4 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.

Let's check out hedge fund activity in other stocks similar to Albemarle Corporation (NYSE:ALB). These stocks are Ralph Lauren Corporation (NYSE:RL), Cabot Oil & Gas Corporation (NYSE:COG), NovoCure Limited (NASDAQ:NVCR), and 58.com Inc (NYSE:WUBA). This group of stocks' market values are similar to ALB's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RL,31,842866,-4 COG,38,667348,1 NVCR,22,375699,0 WUBA,24,331607,2 Average,28.75,554380,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $554 million. That figure was $149 million in ALB's case. Cabot Oil & Gas Corporation (NYSE:COG) is the most popular stock in this table. On the other hand NovoCure Limited (NASDAQ:NVCR) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Albemarle Corporation (NYSE:ALB) is even less popular than NVCR. Hedge funds dodged a bullet by taking a bearish stance towards ALB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ALB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ALB investors were disappointed as the stock returned -6% during the fourth quarter (through the end of November) 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 so far in Q4.

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

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