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Is STN A Good Stock To Buy Now?

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  • EDMCQ
  • STN

In this article we will take a look at whether hedge funds think Stantec Inc. (NYSE:STN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is STN a good stock to buy now? Investors who are in the know were getting more optimistic. The number of bullish hedge fund bets increased by 3 recently. Stantec Inc. (NYSE:STN) was in 8 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. Our calculations also showed that STN 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Now let's go over the key hedge fund action regarding Stantec Inc. (NYSE:STN).

What have hedge funds been doing with Stantec Inc. (NYSE:STN)?

At the end of September, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 60% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards STN over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in Stantec Inc. (NYSE:STN), worth close to $31.6 million, amounting to less than 0.1%% of its total 13F portfolio. On Renaissance Technologies's heels is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $28.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass D. E. Shaw's D E Shaw, John Overdeck and David Siegel's Two Sigma Advisors and Paul Marshall and Ian Wace's Marshall Wace LLP. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to Stantec Inc. (NYSE:STN), around 0.05% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to STN.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most outsized position in Stantec Inc. (NYSE:STN). Marshall Wace LLP had $3.8 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $3 million position during the quarter. The only other fund with a brand new STN position is Donald Sussman's Paloma Partners.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Stantec Inc. (NYSE:STN) but similarly valued. We will take a look at Iridium Communications Inc. (NASDAQ:IRDM), TG Therapeutics Inc (NASDAQ:TGTX), Global Blood Therapeutics Inc (NASDAQ:GBT), Parsons Corporation (NYSE:PSN), Vertex, Inc. (NASDAQ:VERX), Watts Water Technologies Inc (NYSE:WTS), and Cloudera, Inc. (NYSE:CLDR). This group of stocks' market valuations match STN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRDM,15,135802,-4 TGTX,30,718643,-4 GBT,29,662293,-2 PSN,16,84915,1 VERX,15,97006,15 WTS,18,277904,-7 CLDR,31,768674,-2 Average,22,392177,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $392 million. That figure was $82 million in STN's case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand Iridium Communications Inc. (NASDAQ:IRDM) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Stantec Inc. (NYSE:STN) is even less popular than IRDM. Our overall hedge fund sentiment score for STN is 28. 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 dodged a bullet by taking a bearish stance towards STN. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd but managed to beat the market again by 16 percentage points. Unfortunately STN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); STN investors were disappointed as the stock returned -1% since the end of the third quarter (through 12/2) 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 most of these stocks already outperformed the market so far in 2020.

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

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