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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. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Sabre Corporation (NASDAQ:SABR).
Is Sabre Corporation (NASDAQ:SABR) the right investment to pursue these days? The smart money is reducing their bets on the stock. The number of long hedge fund bets dropped by 5 lately. Our calculations also showed that SABR 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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David E. Shaw of D.E. Shaw[/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 we're going to view the new hedge fund action regarding Sabre Corporation (NASDAQ:SABR).
Hedge fund activity in Sabre Corporation (NASDAQ:SABR)
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SABR over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Sabre Corporation (NASDAQ:SABR), which was worth $52 million at the end of the third quarter. On the second spot was Millennium Management which amassed $35.8 million worth of shares. Echo Street Capital Management, Two Sigma Advisors, and Renaissance Technologies 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 MD Sass allocated the biggest weight to Sabre Corporation (NASDAQ:SABR), around 3.44% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, setting aside 0.87 percent of its 13F equity portfolio to SABR.
Since Sabre Corporation (NASDAQ:SABR) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that slashed their positions entirely heading into Q4. Intriguingly, Jeffrey Talpins's Element Capital Management dropped the largest stake of all the hedgies watched by Insider Monkey, valued at about $19.9 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $7.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Sabre Corporation (NASDAQ:SABR) but similarly valued. These stocks are Israel Chemicals Ltd. (NYSE:ICL), Lumentum Holdings Inc (NASDAQ:LITE), Cullen/Frost Bankers, Inc. (NYSE:CFR), and Knight Transportation Inc. (NYSE:KNX). This group of stocks' market valuations match SABR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ICL,6,14809,1 LITE,37,490022,7 CFR,18,58785,-4 KNX,26,342433,3 Average,21.75,226512,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $205 million in SABR's case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 6 bullish hedge fund positions. Sabre Corporation (NASDAQ:SABR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 SABR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SABR were disappointed as the stock returned -72.8% 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 many of these stocks already outperformed the market so far this year.
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.