We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Plains GP Holdings LP (NYSE:PAGP).
Is Plains GP Holdings LP (NYSE:PAGP) a buy right now? Investors who are in the know are becoming hopeful. The number of bullish hedge fund positions inched up by 6 lately. Our calculations also showed that PAGP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). PAGP was in 26 hedge funds' portfolios at the end of December. There were 20 hedge funds in our database with PAGP holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_25717" align="aligncenter" width="400"] Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a gander at the latest hedge fund action encompassing Plains GP Holdings LP (NYSE:PAGP).
Hedge fund activity in Plains GP Holdings LP (NYSE:PAGP)
At Q4's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in PAGP a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Plains GP Holdings LP (NYSE:PAGP) was held by Millennium Management, which reported holding $72.4 million worth of stock at the end of September. It was followed by D E Shaw with a $44.9 million position. Other investors bullish on the company included Deep Basin Capital, Alyeska Investment Group, and Holocene Advisors. In terms of the portfolio weights assigned to each position Yaupon Capital allocated the biggest weight to Plains GP Holdings LP (NYSE:PAGP), around 5.96% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, setting aside 3.58 percent of its 13F equity portfolio to PAGP.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. D E Shaw, managed by D. E. Shaw, initiated the largest position in Plains GP Holdings LP (NYSE:PAGP). D E Shaw had $44.9 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $32.5 million position during the quarter. The following funds were also among the new PAGP investors: Brandon Haley's Holocene Advisors, Steve Cohen's Point72 Asset Management, and Steve Pattyn's Yaupon Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Plains GP Holdings LP (NYSE:PAGP) but similarly valued. These stocks are Insperity Inc (NYSE:NSP), FirstCash, Inc. (NASDAQ:FCFS), Silgan Holdings Inc. (NASDAQ:SLGN), and Omnicell, Inc. (NASDAQ:OMCL). This group of stocks' market values match PAGP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NSP,21,348461,-7 FCFS,16,172761,-3 SLGN,17,210117,-1 OMCL,13,96313,2 Average,16.75,206913,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $207 million. That figure was $367 million in PAGP's case. Insperity Inc (NYSE:NSP) is the most popular stock in this table. On the other hand Omnicell, Inc. (NASDAQ:OMCL) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Plains GP Holdings LP (NYSE:PAGP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately PAGP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PAGP were disappointed as the stock returned -65.8% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.