At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Enterprise Products Partners L.P. (NYSE:EPD) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Enterprise Products Partners L.P. (NYSE:EPD) undervalued? The best stock pickers were getting more bullish. The number of bullish hedge fund bets inched up by 4 recently. Enterprise Products Partners L.P. (NYSE:EPD) was in 30 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EPD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 26 hedge funds in our database with EPD positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Louis Bacon Moore of Moore Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind we’re going to go over the new hedge fund action encompassing Enterprise Products Partners L.P. (NYSE:EPD).
What does smart money think about Enterprise Products Partners L.P. (NYSE:EPD)?
At Q2’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EPD over the last 20 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of Enterprise Products Partners L.P. (NYSE:EPD), with a stake worth $68.1 million reported as of the end of September. Trailing Zimmer Partners was Moore Global Investments, which amassed a stake valued at $39.4 million. Arrowstreet Capital, Citadel Investment Group, and Heronetta 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 Heronetta Management allocated the biggest weight to Enterprise Products Partners L.P. (NYSE:EPD), around 14.89% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, setting aside 6.73 percent of its 13F equity portfolio to EPD.
As aggregate interest increased, some big names have been driving this bullishness. Precept Capital Management, managed by Blair Baker, assembled the biggest position in Enterprise Products Partners L.P. (NYSE:EPD). Precept Capital Management had $13.4 million invested in the company at the end of the quarter. Jerome L. Simon’s Lonestar Capital Management also initiated a $7.3 million position during the quarter. The other funds with brand new EPD positions are Allan Teh’s Kamunting Street Capital, Lawrence Kam’s Sonic Capital, and Ken Griffin’s Citadel Investment Group.
Let’s now review hedge fund activity in other stocks similar to Enterprise Products Partners L.P. (NYSE:EPD). We will take a look at Prudential Public Limited Company (NYSE:PUK), American Electric Power Company, Inc. (NYSE:AEP), DuPont de Nemours Inc (NYSE:DD), The Kraft Heinz Company (NASDAQ:KHC), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), DexCom, Inc. (NASDAQ:DXCM), and Digital Realty Trust, Inc. (NYSE:DLR). All of these stocks’ market caps match EPD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PUK | 5 | 9403 | -1 |
| AEP | 34 | 753751 | -4 |
| DD | 64 | 3509743 | 10 |
| KHC | 35 | 10727266 | -4 |
| SMFG | 10 | 101369 | 0 |
| DXCM | 55 | 1710751 | -3 |
| DLR | 26 | 274088 | -3 |
| Average | 32.7 | 2440910 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $2441 million. That figure was $222 million in EPD’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 5 bullish hedge fund positions. Enterprise Products Partners L.P. (NYSE:EPD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EPD is 60.2. 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. 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 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately EPD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EPD investors were disappointed as the stock returned -3.4% since Q2 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.
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Disclosure: None. This article was originally published at Insider Monkey.
