Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Hornbeck Offshore Services, Inc. (NYSE:HOS) 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 Chesapeake Granite Wash Trust (NYSE:CHKR), LEAP THERAPEUTICS, INC. (NASDAQ:LPTX), and Unique Fabricating Inc (NYSEMKT:UFAB) to gather more data points. Our calculations also showed that HOS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most traders, hedge funds are seen as worthless, outdated investment tools of the past. While there are more than 8000 funds in operation at the moment, Our researchers choose to focus on the elite of this group, approximately 750 funds. These hedge fund managers direct the majority of the hedge fund industry's total capital, and by following their highest performing equity investments, Insider Monkey has unsheathed various investment strategies that have historically exceeded the market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the fresh hedge fund action surrounding Hornbeck Offshore Services, Inc. (NYSE:HOS).
What does smart money think about Hornbeck Offshore Services, Inc. (NYSE:HOS)?
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HOS over the last 17 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Stephen C. Freidheim's Cyrus Capital Partners has the biggest position in Hornbeck Offshore Services, Inc. (NYSE:HOS), worth close to $2.8 million, comprising 0.4% of its total 13F portfolio. Coming in second is Fine Capital Partners, led by Debra Fine, holding a $2.7 million position; 0.6% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions consist of Christopher Pucillo's Solus Alternative Asset Management, Mark Weissman, Adam Cohen and David Coleto's Caspian Capital Partners and Douglas Dethy's DC Capital Partners. In terms of the portfolio weights assigned to each position Caspian Capital Partners allocated the biggest weight to Hornbeck Offshore Services, Inc. (NYSE:HOS), around 1.78% of its 13F portfolio. Solus Alternative Asset Management is also relatively very bullish on the stock, earmarking 0.81 percent of its 13F equity portfolio to HOS.
Since Hornbeck Offshore Services, Inc. (NYSE:HOS) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few fund managers who were dropping their full holdings in the third quarter. Interestingly, Bernard Selz's Selz Capital dumped the biggest stake of the "upper crust" of funds watched by Insider Monkey, worth an estimated $2.7 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dropped about $1.7 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Hornbeck Offshore Services, Inc. (NYSE:HOS). We will take a look at Chesapeake Granite Wash Trust (NYSE:CHKR), LEAP THERAPEUTICS, INC. (NASDAQ:LPTX), Unique Fabricating Inc (NYSEMKT:UFAB), and Zosano Pharma Corp (NASDAQ:ZSAN). This group of stocks' market caps resemble HOS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHKR,2,19,0 LPTX,2,1321,0 UFAB,2,1861,-1 ZSAN,3,2304,1 Average,2.25,1376,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $11 million in HOS's case. Zosano Pharma Corp (NASDAQ:ZSAN) is the most popular stock in this table. On the other hand Chesapeake Granite Wash Trust (NYSE:CHKR) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Hornbeck Offshore Services, Inc. (NYSE:HOS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HOS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HOS were disappointed as the stock returned -51.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.