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Hedge Funds Are Souring On Valvoline Inc. (VVV)

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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Valvoline Inc. (NYSE:VVV).

Valvoline Inc. (NYSE:VVV) shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. Valvoline Inc. (NYSE:VVV) was in 23 hedge funds' portfolios at the end of March. The all time high for this statistic is 40. Our calculations also showed that VVV isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Glenn Greenberg
Glenn Greenberg

Glenn Greenberg of Brave Warrior Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to analyze the fresh hedge fund action encompassing Valvoline Inc. (NYSE:VVV).

Do Hedge Funds Think VVV Is A Good Stock To Buy Now?

At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in VVV a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Valvoline Inc. (NYSE:VVV) was held by Brave Warrior Capital, which reported holding $199.4 million worth of stock at the end of December. It was followed by HG Vora Capital Management with a $143.4 million position. Other investors bullish on the company included Renaissance Technologies, Tensile Capital, and Hawk Ridge Management. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to Valvoline Inc. (NYSE:VVV), around 9.37% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, setting aside 7.66 percent of its 13F equity portfolio to VVV.

Seeing as Valvoline Inc. (NYSE:VVV) has witnessed a decline in interest from the smart money, logic holds that there exists a select few hedgies that decided to sell off their positions entirely in the first quarter. At the top of the heap, Ricky Sandler's Eminence Capital dumped the largest investment of the "upper crust" of funds followed by Insider Monkey, worth close to $76.5 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dropped about $11.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Valvoline Inc. (NYSE:VVV) but similarly valued. These stocks are The Hanover Insurance Group, Inc. (NYSE:THG), Sabre Corporation (NASDAQ:SABR), TTEC Holdings, Inc. (NASDAQ:TTEC), nVent Electric plc (NYSE:NVT), MGIC Investment Corporation (NYSE:MTG), Hexcel Corporation (NYSE:HXL), and UFP Industries, Inc. (NASDAQ:UFPI). This group of stocks' market valuations match VVV's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THG,18,95544,-2 SABR,40,1280794,-6 TTEC,10,55504,0 NVT,31,338555,1 MTG,28,268803,1 HXL,18,98420,-7 UFPI,16,171550,-3 Average,23,329881,-2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $330 million. That figure was $678 million in VVV's case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand TTEC Holdings, Inc. (NASDAQ:TTEC) is the least popular one with only 10 bullish hedge fund positions. Valvoline Inc. (NYSE:VVV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VVV is 39.9. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on VVV, though not to the same extent, as the stock returned 17.1% since the end of Q1 (through July 16th) and outperformed the market.

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