The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 750 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th, 2019. What do these smart investors think about StoneMor Partners L.P. (NYSE:STON)?
Hedge fund interest in StoneMor Partners L.P. (NYSE:STON) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Reed's, Inc. (NASDAQ:REED), Unum Therapeutics Inc. (NASDAQ:UMRX), and BK Technologies Corporation (NYSE:BKTI) to gather more data points. Our calculations also showed that STON isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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 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_694254" align="aligncenter" width="1680"] Andrew Axelrod of Axar Capital[/caption]
We're going to review the new hedge fund action regarding StoneMor Partners L.P. (NYSE:STON).
How have hedgies been trading StoneMor Partners L.P. (NYSE:STON)?
At Q3's end, a total of 2 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 3 hedge funds held shares or bullish call options in STON a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in StoneMor Partners L.P. (NYSE:STON) was held by Axar Capital, which reported holding $8.6 million worth of stock at the end of September. It was followed by Oaktree Capital Management with a $5 million position.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks similar to StoneMor Partners L.P. (NYSE:STON). We will take a look at Reed's, Inc. (NASDAQ:REED), Unum Therapeutics Inc. (NASDAQ:UMRX), BK Technologies Corporation (NYSE:BKTI), and Broadway Financial Corporation (NASDAQ:BYFC). This group of stocks' market caps are closest to STON's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position REED,3,973,0 UMRX,4,2657,-1 BKTI,1,2137,0 BYFC,1,32,0 Average,2.25,1450,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $14 million in STON's case. Unum Therapeutics Inc. (NASDAQ:UMRX) is the most popular stock in this table. On the other hand BK Technologies, Inc. (NYSE:BKTI) is the least popular one with only 1 bullish hedge fund positions. StoneMor Partners L.P. (NYSE:STON) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately STON wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); STON investors were disappointed as the stock returned 1.8% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.