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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 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 NewMarket Corporation (NYSE:NEU).
Is NEU a good stock to buy now? Hedge funds were becoming less hopeful. The number of bullish hedge fund bets retreated by 4 lately. NewMarket Corporation (NYSE:NEU) was in 17 hedge funds' portfolios at the end of September. The all time high for this statistic is 29. Our calculations also showed that NEU isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
In the eyes of most shareholders, hedge funds are viewed as slow, outdated financial tools of years past. While there are more than 8000 funds in operation at present, Our researchers hone in on the moguls of this club, around 850 funds. It is estimated that this group of investors preside over the majority of the hedge fund industry's total asset base, and by watching their matchless investments, Insider Monkey has unearthed a few investment strategies that have historically outstripped the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Mario Gabelli of GAMCO Investors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's go over the key hedge fund action regarding NewMarket Corporation (NYSE:NEU).
Do Hedge Funds Think NEU Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in NEU a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of NewMarket Corporation (NYSE:NEU), with a stake worth $42.9 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $28.1 million. Arrowstreet Capital, Citadel Investment Group, and GAMCO Investors 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 Winton Capital Management allocated the biggest weight to NewMarket Corporation (NYSE:NEU), around 0.14% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to NEU.
Due to the fact that NewMarket Corporation (NYSE:NEU) has witnessed declining sentiment from the smart money, it's easy to see that there is a sect of fund managers who sold off their positions entirely by the end of the third quarter. Intriguingly, Peter Muller's PDT Partners dumped the largest position of all the hedgies monitored by Insider Monkey, comprising close to $2.9 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dropped its stock, about $2.5 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as NewMarket Corporation (NYSE:NEU) but similarly valued. We will take a look at Marriott Vacations Worldwide Corporation (NYSE:VAC), Physicians Realty Trust (NYSE:DOC), Ultrapar Participacoes SA (NYSE:UGP), Shell Midstream Partners LP (NYSE:SHLX), Exponent, Inc. (NASDAQ:EXPO), Emcor Group Inc (NYSE:EME), and FibroGen Inc (NASDAQ:FGEN). All of these stocks' market caps are closest to NEU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VAC,17,375694,-7 DOC,14,99026,-1 UGP,8,32826,1 SHLX,6,22934,0 EXPO,25,80076,6 EME,29,177709,0 FGEN,24,301647,-1 Average,17.6,155702,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $109 million in NEU's case. Emcor Group Inc (NYSE:EME) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 6 bullish hedge fund positions. NewMarket Corporation (NYSE:NEU) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NEU is 42.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on NEU as the stock returned 16.4% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.