How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Methanex Corporation (NASDAQ:MEOH) and determine whether hedge funds had an edge regarding this stock.
Is Methanex Corporation (NASDAQ:MEOH) a healthy stock for your portfolio? The best stock pickers were turning less bullish. The number of long hedge fund positions were trimmed by 4 recently. Our calculations also showed that MEOH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most shareholders, hedge funds are assumed to be unimportant, old financial vehicles of yesteryear. While there are greater than 8000 funds in operation today, Our experts look at the top tier of this group, around 850 funds. These investment experts shepherd most of all hedge funds' total asset base, and by keeping an eye on their highest performing stock picks, Insider Monkey has found a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_746830" align="aligncenter" width="396"] Matthew Hulsizer of PEAK6 Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's view the new hedge fund action surrounding Methanex Corporation (NASDAQ:MEOH).
Hedge fund activity in Methanex Corporation (NASDAQ:MEOH)
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the fourth quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in MEOH a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Methanex Corporation (NASDAQ:MEOH), which was worth $16.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $7.6 million worth of shares. Two Sigma Advisors, Point72 Asset Management, and Millennium Management 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 GRT Capital Partners allocated the biggest weight to Methanex Corporation (NASDAQ:MEOH), around 0.27% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to MEOH.
Since Methanex Corporation (NASDAQ:MEOH) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there exists a select few money managers who were dropping their full holdings last quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management dumped the largest stake of the 750 funds watched by Insider Monkey, worth an estimated $2.5 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dumped about $1.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Methanex Corporation (NASDAQ:MEOH). These stocks are Boise Cascade Co (NYSE:BCC), Southwestern Energy Company (NYSE:SWN), 3D Systems Corporation (NYSE:DDD), and Nova Measuring Instruments Ltd. (NASDAQ:NVMI). This group of stocks' market valuations match MEOH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCC,18,37882,-6 SWN,17,66169,2 DDD,18,63617,-1 NVMI,10,157943,0 Average,15.75,81403,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $46 million in MEOH's case. Boise Cascade Co (NYSE:BCC) is the most popular stock in this table. On the other hand Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is the least popular one with only 10 bullish hedge fund positions. Methanex Corporation (NASDAQ:MEOH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on MEOH as the stock returned 48.8% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.