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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Quad/Graphics, Inc. (NYSE:QUAD) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Quad/Graphics, Inc. (NYSE:QUAD) an outstanding investment today? Money managers were becoming less hopeful. The number of long hedge fund positions were trimmed by 3 lately. Our calculations also showed that QUAD 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). QUAD was in 10 hedge funds' portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with QUAD positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
At the moment there are plenty of methods market participants have at their disposal to value stocks. Two of the most innovative methods are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best hedge fund managers can outpace the market by a very impressive amount (see the details here).
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Bill Miller of Miller Value Partners[/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. With all of this in mind let's analyze the new hedge fund action regarding Quad/Graphics, Inc. (NYSE:QUAD).
How have hedgies been trading Quad/Graphics, Inc. (NYSE:QUAD)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in QUAD a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Miller Value Partners was the largest shareholder of Quad/Graphics, Inc. (NYSE:QUAD), with a stake worth $4.4 million reported as of the end of September. Trailing Miller Value Partners was Renaissance Technologies, which amassed a stake valued at $1.5 million. Arrowstreet Capital, D E Shaw, and Two Sigma Advisors 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 Miller Value Partners allocated the biggest weight to Quad/Graphics, Inc. (NYSE:QUAD), around 0.28% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to QUAD.
Seeing as Quad/Graphics, Inc. (NYSE:QUAD) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few money managers who were dropping their entire stakes last quarter. It's worth mentioning that Israel Englander's Millennium Management sold off the largest investment of all the hedgies tracked by Insider Monkey, valued at close to $1.8 million in stock, and Minhua Zhang's Weld Capital Management was right behind this move, as the fund dumped about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Quad/Graphics, Inc. (NYSE:QUAD). These stocks are Steel Partners Holdings LP (NYSE:SPLP), Synchronoss Technologies, Inc. (NASDAQ:SNCR), Aeglea BioTherapeutics, Inc. (NASDAQ:AGLE), and Select Bancorp, Inc. (NASDAQ:SLCT). This group of stocks' market values are similar to QUAD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPLP,3,10952,-1 SNCR,8,8880,0 AGLE,13,54859,1 SLCT,6,8927,1 Average,7.5,20905,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $8 million in QUAD's case. Aeglea BioTherapeutics, Inc. (NASDAQ:AGLE) is the most popular stock in this table. On the other hand Steel Partners Holdings LP (NYSE:SPLP) is the least popular one with only 3 bullish hedge fund positions. Quad/Graphics, Inc. (NYSE:QUAD) is not the most popular stock in this group but hedge fund interest is still above 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on QUAD as the stock returned 29% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.