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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Valero Energy Corporation (NYSE:VLO).
Is VLO stock a buy or sell? Valero Energy Corporation (NYSE:VLO) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 38 hedge funds' portfolios at the end of the fourth quarter of 2020. Our calculations also showed that VLO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). 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 KKR & Co Inc. (NYSE:KKR), ViacomCBS Inc. (NASDAQ:VIAC), and Ameriprise Financial, Inc. (NYSE:AMP) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Zaro of Bourgeon Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x 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 we're going to analyze the latest hedge fund action regarding Valero Energy Corporation (NYSE:VLO).
Do Hedge Funds Think VLO Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in VLO over the last 22 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Holocene Advisors held the most valuable stake in Valero Energy Corporation (NYSE:VLO), which was worth $117.4 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $110.8 million worth of shares. Two Sigma Advisors, Renaissance Technologies, and Point72 Asset 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 Bourgeon Capital allocated the biggest weight to Valero Energy Corporation (NYSE:VLO), around 2.12% of its 13F portfolio. Swift Run Capital Management is also relatively very bullish on the stock, setting aside 1.46 percent of its 13F equity portfolio to VLO.
Because Valero Energy Corporation (NYSE:VLO) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedgies that elected to cut their positions entirely last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the biggest position of all the hedgies followed by Insider Monkey, worth about $11.7 million in stock. Clint Carlson's fund, Carlson Capital, also cut its stock, about $5.3 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Valero Energy Corporation (NYSE:VLO) but similarly valued. These stocks are KKR & Co Inc. (NYSE:KKR), ViacomCBS Inc. (NASDAQ:VIAC), Ameriprise Financial, Inc. (NYSE:AMP), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), Garmin Ltd. (NASDAQ:GRMN), Ryanair Holdings plc (NASDAQ:RYAAY), and FleetCor Technologies, Inc. (NYSE:FLT). This group of stocks' market valuations match VLO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KKR,54,4136875,4 VIAC,44,919129,0 AMP,34,642947,5 ODFL,50,891260,3 GRMN,27,516357,-5 RYAAY,23,782186,7 FLT,44,2029777,4 Average,39.4,1416933,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.4 hedge funds with bullish positions and the average amount invested in these stocks was $1417 million. That figure was $410 million in VLO's case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Ryanair Holdings plc (NASDAQ:RYAAY) is the least popular one with only 23 bullish hedge fund positions. Valero Energy Corporation (NYSE:VLO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VLO is 49.6. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. A small number of hedge funds were also right about betting on VLO as the stock returned 32.3% since the end of the fourth quarter (through 3/19) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.