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Is Stewart Information Services Corp (NYSE:STC) A Good Stock To Buy?
Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Stewart Information Services Corp (NYSE:STC) changed recently.
Stewart Information Services Corp (NYSE:STC) has seen an increase in activity from the world's largest hedge funds in recent months. STC was in 17 hedge funds' portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with STC positions at the end of the previous quarter. Our calculations also showed that STC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to view the recent hedge fund action surrounding Stewart Information Services Corp (NYSE:STC).
How have hedgies been trading Stewart Information Services Corp (NYSE:STC)?
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 31% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in STC 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.
The largest stake in Stewart Information Services Corp (NYSE:STC) was held by Renaissance Technologies, which reported holding $36.8 million worth of stock at the end of September. It was followed by Magnetar Capital with a $16 million position. Other investors bullish on the company included Millennium Management, Royce & Associates, and Marshall Wace. In terms of the portfolio weights assigned to each position Magnetar Capital allocated the biggest weight to Stewart Information Services Corp (NYSE:STC), around 0.41% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to STC.
Consequently, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the most valuable call position in Stewart Information Services Corp (NYSE:STC). Millennium Management had $9.3 million invested in the company at the end of the quarter. Chuck Royce's Royce & Associates also made a $7.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace, Gregg Moskowitz's Interval Partners, and Joe DiMenna's ZWEIG DIMENNA PARTNERS.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Stewart Information Services Corp (NYSE:STC) but similarly valued. We will take a look at Kforce Inc. (NASDAQ:KFRC), HarborOne Bancorp, Inc. (NASDAQ:HONE), MAG Silver Corporation (NYSE:MAG), and Hollysys Automation Technologies Ltd (NASDAQ:HOLI). This group of stocks' market caps match STC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KFRC,19,78540,1 HONE,11,24308,7 MAG,12,26911,3 HOLI,13,61301,0 Average,13.75,47765,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $92 million in STC's case. Kforce Inc. (NASDAQ:KFRC) is the most popular stock in this table. On the other hand HarborOne Bancorp, Inc. (NASDAQ:HONE) is the least popular one with only 11 bullish hedge fund positions. Stewart Information Services Corp (NYSE:STC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on STC, though not to the same extent, as the stock returned 10.3% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.