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 Plains All American Pipeline, L.P. (NYSE:PAA).
Plains All American Pipeline, L.P. (NYSE:PAA) has experienced an increase in hedge fund interest recently. Our calculations also showed that PAA isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the recent hedge fund action regarding Plains All American Pipeline, L.P. (NYSE:PAA).
How have hedgies been trading Plains All American Pipeline, L.P. (NYSE:PAA)?
Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the first quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in PAA 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.
Among these funds, Renaissance Technologies held the most valuable stake in Plains All American Pipeline, L.P. (NYSE:PAA), which was worth $26.3 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $14.4 million worth of shares. Moreover, Arrowstreet Capital, MFP Investors, and Citadel Investment Group were also bullish on Plains All American Pipeline, L.P. (NYSE:PAA), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key hedge funds have been driving this bullishness. Segantii Capital, managed by Simon Sadler, established the largest position in Plains All American Pipeline, L.P. (NYSE:PAA). Segantii Capital had $1.8 million invested in the company at the end of the quarter. David Andre and Astro Teller's Cerebellum Capital also made a $0.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer's PEAK6 Capital Management.
Let's now review hedge fund activity in other stocks similar to Plains All American Pipeline, L.P. (NYSE:PAA). These stocks are ArcelorMittal (NYSE:MT), CBRE Group, Inc. (NYSE:CBRE), Lyft, Inc. (NASDAQ:LYFT), and International Paper Company (NYSE:IP). This group of stocks' market caps resemble PAA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MT,15,247433,3 CBRE,25,1293555,-6 LYFT,37,1788821,-34 IP,31,256587,2 Average,27,896599,-8.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $897 million. That figure was $80 million in PAA's case. Lyft, Inc. (NASDAQ:LYFT) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Plains All American Pipeline, L.P. (NYSE:PAA) is even less popular than MT. Hedge funds dodged a bullet by taking a bearish stance towards PAA. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PAA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PAA investors were disappointed as the stock returned -13.5% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.