In this article we will check out the progression of hedge fund sentiment towards Sealed Air Corporation (NYSE:SEE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Sealed Air Corporation (NYSE:SEE) shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. SEE was in 29 hedge funds' portfolios at the end of March. There were 30 hedge funds in our database with SEE positions at the end of the previous quarter. Our calculations also showed that SEE 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.
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 58 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.
[caption id="attachment_735641" align="aligncenter" width="397"] Michael Lowenstein of Kensico Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the 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 recent hedge fund action encompassing Sealed Air Corporation (NYSE:SEE).
Hedge fund activity in Sealed Air Corporation (NYSE:SEE)
At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SEE over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Rivulet Capital was the largest shareholder of Sealed Air Corporation (NYSE:SEE), with a stake worth $190.4 million reported as of the end of September. Trailing Rivulet Capital was Kensico Capital, which amassed a stake valued at $163.7 million. Eminence Capital, Nitorum Capital, and Impax Asset 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 Rivulet Capital allocated the biggest weight to Sealed Air Corporation (NYSE:SEE), around 12.19% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, designating 5.77 percent of its 13F equity portfolio to SEE.
Since Sealed Air Corporation (NYSE:SEE) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers that decided to sell off their full holdings heading into Q4. Intriguingly, Noam Gottesman's GLG Partners dropped the largest investment of the "upper crust" of funds followed by Insider Monkey, totaling about $4.3 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund sold off about $1.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Sealed Air Corporation (NYSE:SEE) but similarly valued. We will take a look at KT Corporation (NYSE:KT), Armstrong World Industries, Inc. (NYSE:AWI), First Solar, Inc. (NASDAQ:FSLR), and Landstar System, Inc. (NASDAQ:LSTR). This group of stocks' market values resemble SEE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KT,15,159253,-2 AWI,20,323045,-4 FSLR,22,150839,-2 LSTR,22,156653,-2 Average,19.75,197448,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $702 million in SEE's case. First Solar, Inc. (NASDAQ:FSLR) is the most popular stock in this table. On the other hand KT Corporation (NYSE:KT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Sealed Air Corporation (NYSE:SEE) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on SEE as the stock returned 29.9% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.