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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Valvoline Inc. (NYSE:VVV) 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 Valvoline Inc. (NYSE:VVV) a safe investment right now? Prominent investors are getting less bullish. The number of long hedge fund positions retreated by 2 in recent months. Our calculations also showed that VVV isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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' 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 S&P 500 ETFs by 41 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 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.
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David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to take a peek at the recent hedge fund action encompassing Valvoline Inc. (NYSE:VVV).
How are hedge funds trading Valvoline Inc. (NYSE:VVV)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in VVV 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 Valvoline Inc. (NYSE:VVV) was held by Renaissance Technologies, which reported holding $89 million worth of stock at the end of September. It was followed by Tensile Capital with a $67.9 million position. Other investors bullish on the company included D E Shaw, GAMCO Investors, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to Valvoline Inc. (NYSE:VVV), around 8.69% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, setting aside 3.38 percent of its 13F equity portfolio to VVV.
Since Valvoline Inc. (NYSE:VVV) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few hedgies that elected to cut their positions entirely last quarter. It's worth mentioning that Louis Bacon's Moore Global Investments said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, comprising close to $3.3 million in stock. Mika Toikka's fund, AlphaCrest Capital Management, also sold off its stock, about $1.2 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Valvoline Inc. (NYSE:VVV). We will take a look at NuVasive, Inc. (NASDAQ:NUVA), Weingarten Realty Investors (NYSE:WRI), Coherent, Inc. (NASDAQ:COHR), and National Fuel Gas Company (NYSE:NFG). This group of stocks' market values match VVV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NUVA,26,312278,3 WRI,20,175695,-1 COHR,28,325243,9 NFG,26,179051,2 Average,25,248067,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $372 million in VVV's case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand Weingarten Realty Investors (NYSE:WRI) is the least popular one with only 20 bullish hedge fund positions. Valvoline Inc. (NYSE:VVV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately VVV wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VVV were disappointed as the stock returned -34.9% during the same time period 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.