While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding International Paper Company (NYSE:IP) and see how the stock performed in comparison to hedge funds' consensus picks.
International Paper Company (NYSE:IP) was in 27 hedge funds' portfolios at the end of the third quarter of 2019. IP has seen a decrease in enthusiasm from smart money in recent months. There were 31 hedge funds in our database with IP positions at the end of the previous quarter. Our calculations also showed that IP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
To the average investor there are plenty of signals stock market investors employ to evaluate stocks. A couple of the best signals are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the best hedge fund managers can outpace their index-focused peers by a healthy amount (see the details here).
[caption id="attachment_340081" align="aligncenter" width="600"] Phill Gross of Adage Capital Management[/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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let's take a gander at the latest hedge fund action encompassing International Paper Company (NYSE:IP).
How have hedgies been trading International Paper Company (NYSE:IP)?
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards IP over the last 17 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in International Paper Company (NYSE:IP), which was worth $136.4 million at the end of the third quarter. On the second spot was 12th Street Asset Management which amassed $21.6 million worth of shares. Renaissance Technologies, Adage Capital Management, and Bridgewater Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to International Paper Company (NYSE:IP), around 5.72% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, dishing out 0.85 percent of its 13F equity portfolio to IP.
Judging by the fact that International Paper Company (NYSE:IP) has experienced bearish sentiment from the smart money, logic holds that there were a few fund managers that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Donald Sussman's Paloma Partners sold off the largest position of the 750 funds followed by Insider Monkey, worth an estimated $3.2 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as International Paper Company (NYSE:IP) but similarly valued. These stocks are Laboratory Corp. of America Holdings (NYSE:LH), Nasdaq, Inc. (NASDAQ:NDAQ), Markel Corporation (NYSE:MKL), and First Republic Bank (NYSE:FRC). This group of stocks' market valuations resemble IP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LH,40,1435297,2 NDAQ,21,134209,1 MKL,28,1394617,3 FRC,19,815413,-3 Average,27,944884,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $945 million. That figure was $273 million in IP's case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand First Republic Bank (NYSE:FRC) is the least popular one with only 19 bullish hedge fund positions. International Paper Company (NYSE:IP) 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. Unfortunately IP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IP investors were disappointed as the stock returned 19.5% in 2019 and trailed 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 65 percent of these stocks already outperformed the market in 2019. 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.