Is HollyFrontier Corporation (NYSE:HFC) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
HollyFrontier Corporation (NYSE:HFC) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds' portfolios at the end of March. 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 Nielsen Holdings plc (NYSE:NLSN), LINE Corporation (NYSE:LN), and Brown & Brown, Inc. (NYSE:BRO) to gather more data points.
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.
Let's review the key hedge fund action surrounding HollyFrontier Corporation (NYSE:HFC).
Hedge fund activity in HollyFrontier Corporation (NYSE:HFC)
Heading into the second quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards HFC over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in HollyFrontier Corporation (NYSE:HFC) was held by AQR Capital Management, which reported holding $580.2 million worth of stock at the end of March. It was followed by Point72 Asset Management with a $48.4 million position. Other investors bullish on the company included Renaissance Technologies, Balyasny Asset Management, and D E Shaw.
Seeing as HollyFrontier Corporation (NYSE:HFC) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers that elected to cut their entire stakes in the third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest investment of the "upper crust" of funds watched by Insider Monkey, worth close to $6.3 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund cut about $4.4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to HollyFrontier Corporation (NYSE:HFC). These stocks are Nielsen Holdings plc (NYSE:NLSN), LINE Corporation (NYSE:LN), Brown & Brown, Inc. (NYSE:BRO), and WEX Inc (NYSE:WEX). This group of stocks' market values are similar to HFC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NLSN,33,1273283,-2 LN,5,50743,1 BRO,17,691830,-3 WEX,30,546702,-2 Average,21.25,640640,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $641 million. That figure was $827 million in HFC's case. Nielsen Holdings plc (NYSE:NLSN) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 5 bullish hedge fund positions. HollyFrontier Corporation (NYSE:HFC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately HFC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HFC were disappointed as the stock returned -19% 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.