There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Ensco Rowan plc (NYSE:ESV).
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 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 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.
Let's check out the new hedge fund action surrounding Ensco Rowan plc (NYSE:ESV).
What have hedge funds been doing with Ensco Rowan plc (NYSE:ESV)?
Heading into the first quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in ESV 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.
More specifically, Greenlight Capital was the largest shareholder of Ensco Rowan plc (NYSE:ESV), with a stake worth $71.2 million reported as of the end of December. Trailing Greenlight Capital was Luminus Management, which amassed a stake valued at $45.9 million. Orbis Investment Management, Renaissance Technologies, and Manikay Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers were leading the bulls' herd. Luminus Management, managed by Jonathan Barrett and Paul Segal, assembled the biggest position in Ensco Rowan plc (NYSE:ESV). Luminus Management had $45.9 million invested in the company at the end of the quarter. Shane Finemore's Manikay Partners also made a $15.2 million investment in the stock during the quarter. The other funds with brand new ESV positions are Robert Emil Zoellner's Alpine Associates, Thiru Ramakrishnan's TVR Capital, and David Costen Haley's HBK Investments.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Ensco Rowan plc (NYSE:ESV) but similarly valued. We will take a look at Welbilt, Inc. (NYSE:WBT), LegacyTexas Financial Group Inc (NASDAQ:LTXB), TopBuild Corp (NYSE:BLD), and Alexander's, Inc. (NYSE:ALX). This group of stocks' market valuations resemble ESV's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WBT,23,508373,1 LTXB,12,65493,-2 BLD,14,91036,-4 ALX,6,54780,-2 Average,13.75,179921,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $292 million in ESV's case. Welbilt, Inc. (NYSE:WBT) is the most popular stock in this table. On the other hand Alexander's, Inc. (NYSE:ALX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ensco Rowan plc (NYSE:ESV) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ESV wasn't nearly as popular as these 15 stock and hedge funds that were betting on ESV were disappointed as the stock returned 13.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.