Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is HP Inc. (NYSE:HPQ) a superb investment right now? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets shrunk by 5 recently. Our calculations also showed that HPQ isn't among the 30 most popular stocks among hedge funds. HPQ was in 35 hedge funds' portfolios at the end of the first quarter of 2019. There were 40 hedge funds in our database with HPQ positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? 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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
We're going to take a glance at the key hedge fund action encompassing HP Inc. (NYSE:HPQ).
How have hedgies been trading HP Inc. (NYSE:HPQ)?
Heading into the second quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the fourth quarter of 2018. By comparison, 36 hedge funds held shares or bullish call options in HPQ a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the number one position in HP Inc. (NYSE:HPQ). AQR Capital Management has a $362.7 million position in the stock, comprising 0.4% of its 13F portfolio. The second most bullish fund manager is D. E. Shaw of D E Shaw, with a $115 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, John Overdeck and David Siegel's Two Sigma Advisors and Ken Griffin's Citadel Investment Group.
Because HP Inc. (NYSE:HPQ) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few funds that elected to cut their entire stakes in the third quarter. At the top of the heap, David Cohen and Harold Levy's Iridian Asset Management said goodbye to the biggest position of the "upper crust" of funds monitored by Insider Monkey, comprising close to $232.6 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund sold off about $13.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 5 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to HP Inc. (NYSE:HPQ). We will take a look at Credit Suisse Group AG (NYSE:CS), Thomson Reuters Corporation (NYSE:TRI), Monster Beverage Corp (NASDAQ:MNST), and Tencent Music Entertainment Group (NYSE:TME). All of these stocks' market caps are similar to HPQ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CS,14,194661,0 TRI,17,227269,-2 MNST,33,2067252,1 TME,20,424298,-5 Average,21,728370,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $728 million. That figure was $868 million in HPQ's case. Monster Beverage Corp (NASDAQ:MNST) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks HP Inc. (NYSE:HPQ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately HPQ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HPQ were disappointed as the stock returned -1.5% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.