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. 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 835 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 Methanex Corporation (NASDAQ:MEOH).
Hedge fund interest in Methanex Corporation (NASDAQ:MEOH) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Builders FirstSource, Inc. (NASDAQ:BLDR), Advanced Disposal Services, Inc. (NYSE:ADSW), and Hilton Grand Vacations Inc. (NYSE:HGV) to gather more data points. Our calculations also showed that MEOH 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26262" align="aligncenter" width="359"] 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 view the recent hedge fund action regarding Methanex Corporation (NASDAQ:MEOH).
What have hedge funds been doing with Methanex Corporation (NASDAQ:MEOH)?
At Q4's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in MEOH a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Methanex Corporation (NASDAQ:MEOH) was held by Renaissance Technologies, which reported holding $54.5 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $45.2 million position. Other investors bullish on the company included Millennium Management, Point72 Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Proxima Capital Management allocated the biggest weight to Methanex Corporation (NASDAQ:MEOH), around 1.15% of its 13F portfolio. GRT Capital Partners is also relatively very bullish on the stock, setting aside 0.85 percent of its 13F equity portfolio to MEOH.
Seeing as Methanex Corporation (NASDAQ:MEOH) has experienced falling interest from hedge fund managers, logic holds that there lies a certain "tier" of fund managers that slashed their entire stakes heading into Q4. It's worth mentioning that Israel Englander's Millennium Management dumped the biggest position of the 750 funds watched by Insider Monkey, totaling close to $2.5 million in stock. Minhua Zhang's fund, Weld Capital Management, also said goodbye to its stock, about $0.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Methanex Corporation (NASDAQ:MEOH). These stocks are Builders FirstSource, Inc. (NASDAQ:BLDR), Advanced Disposal Services, Inc. (NYSE:ADSW), Hilton Grand Vacations Inc. (NYSE:HGV), and Cannae Holdings, Inc. (NYSE:CNNE). All of these stocks' market caps resemble MEOH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLDR,40,535140,1 ADSW,22,655764,-2 HGV,46,1039360,3 CNNE,31,376691,12 Average,34.75,651739,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $652 million. That figure was $196 million in MEOH's case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Advanced Disposal Services, Inc. (NYSE:ADSW) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Methanex Corporation (NASDAQ:MEOH) is even less popular than ADSW. Hedge funds dodged a bullet by taking a bearish stance towards MEOH. Our calculations showed that the top 20 most popular hedge fund stocks 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 but managed to beat the market by 5.5 percentage points. Unfortunately MEOH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MEOH investors were disappointed as the stock returned -61.6% during the same time 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 most of these stocks already outperformed the market so far 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.