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Is SQM A Good Stock To Buy Now?

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Abigail Fisher
·6 min read
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In this article we will check out the progression of hedge fund sentiment towards Sociedad Química y Minera de Chile S.A. (NYSE:SQM) 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.

Is SQM a good stock to buy now? Money managers were in a bearish mood. The number of long hedge fund bets fell by 2 recently. Sociedad Química y Minera de Chile S.A. (NYSE:SQM) was in 12 hedge funds' portfolios at the end of September. The all time high for this statistics is 20. Our calculations also showed that SQM isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Eric Sprott Sprott Asset Management
Eric Sprott Sprott Asset Management

Eric Sprott of Sprott Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind let's check out the new hedge fund action surrounding Sociedad Química y Minera de Chile S.A. (NYSE:SQM).

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

At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2020. On the other hand, there were a total of 8 hedge funds with a bullish position in SQM a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of Sociedad Química y Minera de Chile S.A. (NYSE:SQM), with a stake worth $28 million reported as of the end of September. Trailing Arrowstreet Capital was Driehaus Capital, which amassed a stake valued at $19.5 million. Oaktree Capital Management, SailingStone Capital Partners, and Millennium 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 SailingStone Capital Partners allocated the biggest weight to Sociedad Química y Minera de Chile S.A. (NYSE:SQM), around 6.76% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to SQM.

Since Sociedad Química y Minera de Chile S.A. (NYSE:SQM) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds who sold off their entire stakes last quarter. At the top of the heap, Minhua Zhang's Weld Capital Management dumped the biggest investment of the 750 funds followed by Insider Monkey, comprising an estimated $1.1 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also cut its stock, about $1 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Sociedad Química y Minera de Chile S.A. (NYSE:SQM) but similarly valued. We will take a look at The Scotts Miracle-Gro Company (NYSE:SMG), A. O. Smith Corporation (NYSE:AOS), Universal Display Corporation (NASDAQ:OLED), Globe Life Inc. (NYSE:GL), MGM Growth Properties LLC (NYSE:MGP), Five9 Inc (NASDAQ:FIVN), and LKQ Corporation (NASDAQ:LKQ). This group of stocks' market caps resemble SQM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMG,31,292026,1 AOS,30,435487,-5 OLED,20,95777,-5 GL,31,751195,-2 MGP,30,470854,-2 FIVN,47,1328168,3 LKQ,51,1384655,7 Average,34.3,679737,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $680 million. That figure was $116 million in SQM's case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Universal Display Corporation (NASDAQ:OLED) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is even less popular than OLED. Our overall hedge fund sentiment score for SQM is 21. 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. Hedge funds clearly dropped the ball on SQM as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on SQM as the stock returned 49.1% since Q3 (through December 8th) and outperformed the market by an even larger margin.

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

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