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Was The Smart Money Right About International Paper Company (IP)?

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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of International Paper Company (NYSE:IP).

International Paper Company (NYSE:IP) has seen a decrease in hedge fund interest lately. International Paper Company (NYSE:IP) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistic is 36. Our calculations also showed that IP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of indicators stock market investors have at their disposal to assess their stock investments. A pair of the less utilized indicators are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best hedge fund managers can outclass the S&P 500 by a significant margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

David E. Shaw of D.E. Shaw
David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to take a look at the new hedge fund action regarding International Paper Company (NYSE:IP).

Do Hedge Funds Think IP Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in IP over the last 24 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, AQR Capital Management was the largest shareholder of International Paper Company (NYSE:IP), with a stake worth $48 million reported as of the end of June. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $35.7 million. Levin Easterly Partners, D E Shaw, and Citadel Investment Group 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 Appian Way Asset Management allocated the biggest weight to International Paper Company (NYSE:IP), around 9.5% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, earmarking 3.71 percent of its 13F equity portfolio to IP.

Judging by the fact that International Paper Company (NYSE:IP) has witnessed declining sentiment from hedge fund managers, logic holds that there lies a certain "tier" of hedge funds who were dropping their entire stakes in the second quarter. It's worth mentioning that Thomas E. Claugus's GMT Capital said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $7.9 million in stock. Renaissance Technologies, also cut its stock, about $7 million worth. These moves are important to note, as total hedge fund interest dropped by 5 funds in the second quarter.

Let's also examine hedge fund activity in other stocks similar to International Paper Company (NYSE:IP). These stocks are Baker Hughes Company (NYSE:BKR), AmerisourceBergen Corporation (NYSE:ABC), Splunk Inc (NASDAQ:SPLK), Canon Inc. (NYSE:CAJ), Fortive Corporation (NYSE:FTV), McCormick & Company, Incorporated (NYSE:MKC), and Cerner Corporation (NASDAQ:CERN). This group of stocks' market values are closest to IP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKR,40,1012638,-2 ABC,43,1005836,0 SPLK,47,1185992,6 CAJ,8,53729,-1 FTV,31,2235231,4 MKC,34,2032436,-1 CERN,38,1394559,-2 Average,34.4,1274346,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $1274 million. That figure was $210 million in IP's case. Splunk Inc (NASDAQ:SPLK) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. International Paper Company (NYSE:IP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IP is 55.3. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately IP wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); IP investors were disappointed as the stock returned -15.1% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.