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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let's see whether NewMarket Corporation (NYSE:NEU) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
NewMarket Corporation (NYSE:NEU) was in 22 hedge funds' portfolios at the end of December. NEU investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 29 hedge funds in our database with NEU holdings at the end of the previous quarter. Our calculations also showed that NEU isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you'd ask most investors, hedge funds are viewed as worthless, old financial tools of the past. While there are over 8000 funds in operation at the moment, Our experts look at the leaders of this group, approximately 850 funds. Most estimates calculate that this group of people preside over the majority of all hedge funds' total asset base, and by monitoring their unrivaled picks, Insider Monkey has brought to light a few investment strategies that have historically outrun the market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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Lee Ainslie of Maverick Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's go over the latest hedge fund action regarding NewMarket Corporation (NYSE:NEU).
What have hedge funds been doing with NewMarket Corporation (NYSE:NEU)?
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NEU over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in NewMarket Corporation (NYSE:NEU) was held by AQR Capital Management, which reported holding $81 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $32.4 million position. Other investors bullish on the company included Citadel Investment Group, Winton Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to NewMarket Corporation (NYSE:NEU), around 0.24% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.18 percent of its 13F equity portfolio to NEU.
Due to the fact that NewMarket Corporation (NYSE:NEU) has witnessed falling interest from the smart money, logic holds that there exists a select few fund managers who were dropping their full holdings last quarter. Intriguingly, Benjamin A. Smith's Laurion Capital Management cut the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth about $1.5 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dropped its stock, about $1.4 million worth. These transactions are interesting, as total hedge fund interest fell by 7 funds last quarter.
Let's check out hedge fund activity in other stocks similar to NewMarket Corporation (NYSE:NEU). We will take a look at Marriott Vacations Worldwide Corporation (NYSE:VAC), Nexstar Media Group, Inc. (NASDAQ:NXST), Primerica, Inc. (NYSE:PRI), and The Hanover Insurance Group, Inc. (NYSE:THG). This group of stocks' market values are closest to NEU's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VAC,25,512208,-5 NXST,40,1488285,5 PRI,28,324417,2 THG,21,224949,-7 Average,28.5,637465,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $637 million. That figure was $195 million in NEU's case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand The Hanover Insurance Group, Inc. (NYSE:THG) is the least popular one with only 21 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. 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. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately NEU wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NEU investors were disappointed as the stock returned -32% during the same time 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 most of these stocks already outperformed the market in Q1.
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.