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At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Valvoline Inc. (NYSE:VVV) makes for a good investment right now.
Is VVV a good stock to buy? Valvoline Inc. (NYSE:VVV) investors should be aware of a decrease in hedge fund interest lately. Valvoline Inc. (NYSE:VVV) was in 35 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. Our calculations also showed that VVV 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 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 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 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.
Parag Vora of HG Vora Capital Management
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 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 take a glance at the recent hedge fund action regarding Valvoline Inc. (NYSE:VVV).
Do Hedge Funds Think VVV Is A Good Stock To Buy Now?
At third quarter's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VVV over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Parag Vora's HG Vora Capital Management has the biggest position in Valvoline Inc. (NYSE:VVV), worth close to $114.2 million, comprising 8.6% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $106.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass Douglas Dossey and Arthur Young's Tensile Capital, Ricky Sandler's Eminence Capital and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Valvoline Inc. (NYSE:VVV), around 8.61% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, dishing out 8.05 percent of its 13F equity portfolio to VVV.
Seeing as Valvoline Inc. (NYSE:VVV) has faced a decline in interest from hedge fund managers, it's easy to see that there was a specific group of hedge funds who were dropping their positions entirely heading into Q4. Interestingly, Jack Woodruff's Candlestick Capital Management said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, comprising close to $29.5 million in stock, and Craig Peskin and Peter Fleiss's Solel Partners was right behind this move, as the fund cut about $9.3 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds heading into Q4.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Valvoline Inc. (NYSE:VVV) but similarly valued. These stocks are National Oilwell Varco, Inc. (NYSE:NOV), MSC Industrial Direct Co Inc (NYSE:MSM), The Hanover Insurance Group, Inc. (NYSE:THG), Texas Pacific Land Trust (NYSE:TPL), The Hain Celestial Group, Inc. (NASDAQ:HAIN), Highwoods Properties Inc (NYSE:HIW), and Grupo Televisa SAB (NYSE:TV). All of these stocks' market caps resemble VVV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOV,33,530078,3 MSM,22,266847,-8 THG,27,142850,2 TPL,13,762288,-1 HAIN,21,892531,-3 HIW,25,262650,-5 TV,17,499490,-4 Average,22.6,479533,-2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $480 million. That figure was $560 million in VVV's case. National Oilwell Varco, Inc. (NYSE:NOV) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Valvoline Inc. (NYSE:VVV) is more popular among hedge funds. Our overall hedge fund sentiment score for VVV is 76.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on VVV as the stock returned 23.6% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.