Did Hedge Funds Get United Parcel Service, Inc. (UPS) Right?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding United Parcel Service, Inc. (NYSE:UPS) and determine whether hedge funds had an edge regarding this stock.

Is United Parcel Service, Inc. (NYSE:UPS) worth your attention right now? The smart money was getting less bullish. The number of long hedge fund positions fell by 10 in recent months. United Parcel Service, Inc. (NYSE:UPS) was in 42 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 57. Our calculations also showed that UPS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 52 hedge funds in our database with UPS holdings at the end of June.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s analyze the recent hedge fund action surrounding United Parcel Service, Inc. (NYSE:UPS).

Paul Tudor Jones of Tudor Investment Corp

Do Hedge Funds Think UPS Is A Good Stock To Buy Now?

At Q3’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the second quarter of 2021. By comparison, 57 hedge funds held shares or bullish call options in UPS a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Michael Larson’s Bill & Melinda Gates Foundation Trust has the biggest position in United Parcel Service, Inc. (NYSE:UPS), worth close to $415.9 million, accounting for 1.8% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $275.6 million call position; 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions comprise Renaissance Technologies, Phill Gross and Robert Atchinson’s Adage Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to United Parcel Service, Inc. (NYSE:UPS), around 1.79% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, dishing out 1.59 percent of its 13F equity portfolio to UPS.

Seeing as United Parcel Service, Inc. (NYSE:UPS) has faced bearish sentiment from the smart money, logic holds that there is a sect of funds who sold off their positions entirely by the end of the third quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors dropped the largest position of the “upper crust” of funds followed by Insider Monkey, totaling about $312.7 million in call options, and Mike Masters’s Masters Capital Management was right behind this move, as the fund sold off about $83.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 10 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to United Parcel Service, Inc. (NYSE:UPS). We will take a look at Moderna, Inc. (NASDAQ:MRNA), NextEra Energy, Inc. (NYSE:NEE), Linde plc (NYSE:LIN), Charter Communications, Inc. (NASDAQ:CHTR), Philip Morris International Inc. (NYSE:PM), Intuit Inc. (NASDAQ:INTU), and Honeywell International Inc. (NYSE:HON). This group of stocks’ market valuations match UPS’s market valuation.

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As you can see these stocks had an average of 54.1 hedge funds with bullish positions and the average amount invested in these stocks was $6608 million. That figure was $1266 million in UPS’s case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand Honeywell International Inc. (NYSE:HON) is the least popular one with only 45 bullish hedge fund positions. Compared to these stocks United Parcel Service, Inc. (NYSE:UPS) is even less popular than HON. Our overall hedge fund sentiment score for UPS is 17.1. 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. Hedge funds clearly dropped the ball on UPS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on UPS as the stock returned 11.6% since Q3 (through January 31st) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.