Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. 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. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Schlumberger Limited. (NYSE:SLB) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is Schlumberger Limited. (NYSE:SLB) ready to rally soon? The smart money is reducing their bets on the stock. The number of bullish hedge fund positions fell by 6 lately. Our calculations also showed that SLB 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). SLB was in 47 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 53 hedge funds in our database with SLB positions at the end of the previous quarter.
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.
[caption id="attachment_26357" align="aligncenter" width="359"] Ken Fisher of Fisher Asset Management[/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. Keeping this in mind let's go over the fresh hedge fund action surrounding Schlumberger Limited. (NYSE:SLB).
Hedge fund activity in Schlumberger Limited. (NYSE:SLB)
At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SLB over the last 18 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Schlumberger Limited. (NYSE:SLB) was held by Fisher Asset Management, which reported holding $495 million worth of stock at the end of September. It was followed by International Value Advisers with a $149.1 million position. Other investors bullish on the company included Citadel Investment Group, Orbis Investment Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Chiron Investment Management allocated the biggest weight to Schlumberger Limited. (NYSE:SLB), around 6.21% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, earmarking 6.11 percent of its 13F equity portfolio to SLB.
Due to the fact that Schlumberger Limited. (NYSE:SLB) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who were dropping their entire stakes in the third quarter. Intriguingly, Ray Dalio's Bridgewater Associates cut the largest position of the "upper crust" of funds monitored by Insider Monkey, valued at about $16.5 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also cut its stock, about $12.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 6 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Schlumberger Limited. (NYSE:SLB) but similarly valued. We will take a look at Ecolab Inc. (NYSE:ECL), Global Payments Inc (NYSE:GPN), Deere & Company (NYSE:DE), and The Sherwin-Williams Company (NYSE:SHW). This group of stocks' market valuations are closest to SLB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ECL,44,2301979,2 GPN,64,4063969,-4 DE,50,1403325,9 SHW,55,1847137,4 Average,53.25,2404103,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.25 hedge funds with bullish positions and the average amount invested in these stocks was $2404 million. That figure was $1208 million in SLB's case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand Ecolab Inc. (NYSE:ECL) is the least popular one with only 44 bullish hedge fund positions. Schlumberger Limited. (NYSE:SLB) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately SLB wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SLB investors were disappointed as the stock returned -60.2% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. 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.