Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let's see whether SYNNEX Corporation (NYSE:SNX) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
SYNNEX Corporation (NYSE:SNX) has experienced a decrease in hedge fund interest of late. Our calculations also showed that SNX 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_26092" align="aligncenter" width="400"] Joel Greenblatt of Gotham 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 we're going to take a glance at the fresh hedge fund action encompassing SYNNEX Corporation (NYSE:SNX).
How are hedge funds trading SYNNEX Corporation (NYSE:SNX)?
At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in SNX over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SYNNEX Corporation (NYSE:SNX) was held by Lyrical Asset Management, which reported holding $162.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $61.4 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and Woodline Partners. In terms of the portfolio weights assigned to each position Lyrical Asset Management allocated the biggest weight to SYNNEX Corporation (NYSE:SNX), around 2.21% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, dishing out 2.21 percent of its 13F equity portfolio to SNX.
Seeing as SYNNEX Corporation (NYSE:SNX) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of fund managers who were dropping their positions entirely last quarter. Intriguingly, Anand Parekh's Alyeska Investment Group dropped the biggest stake of the 750 funds monitored by Insider Monkey, worth an estimated $17.5 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $9.1 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to SYNNEX Corporation (NYSE:SNX). We will take a look at Enel Chile S.A. (NYSE:ENIC), First American Financial Corp (NYSE:FAF), HD Supply Holdings Inc (NASDAQ:HDS), and Moderna, Inc. (NASDAQ:MRNA). This group of stocks' market valuations are closest to SNX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENIC,6,39114,-2 FAF,42,895235,4 HDS,38,950035,3 MRNA,12,256023,3 Average,24.5,535102,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $390 million in SNX's case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 6 bullish hedge fund positions. SYNNEX Corporation (NYSE:SNX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately SNX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SNX investors were disappointed as the stock returned -39.5% 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 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.