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 Albemarle Corporation (NYSE:ALB) and determine whether hedge funds had an edge regarding this stock.
Albemarle Corporation (NYSE:ALB) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 40. ALB shareholders have witnessed an increase in hedge fund interest lately. There were 24 hedge funds in our database with ALB positions at the end of the first quarter. Our calculations also showed that ALB 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).
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 58 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.
Matthew Hulsizer of PEAK6 CapitalMatthew Hulsizer
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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 to get excerpts of these letters in your inbox. With all of this in mind let’s analyze the new hedge fund action encompassing Albemarle Corporation (NYSE:ALB).
Hedge fund activity in Albemarle Corporation (NYSE:ALB)
At second quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ALB over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Albemarle Corporation (NYSE:ALB), with a stake worth $23.7 million reported as of the end of September. Trailing Citadel Investment Group was Sandbar Asset Management, which amassed a stake valued at $18.6 million. ZWEIG DIMENNA PARTNERS, PEAK6 Capital Management, and Royce & Associates 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 Sandbar Asset Management allocated the biggest weight to Albemarle Corporation (NYSE:ALB), around 5.74% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, setting aside 1.75 percent of its 13F equity portfolio to ALB.
Consequently, some big names have jumped into Albemarle Corporation (NYSE:ALB) headfirst. Bronson Point Partners, managed by Larry Foley and Paul Farrell, initiated the largest position in Albemarle Corporation (NYSE:ALB). Bronson Point Partners had $2.3 million invested in the company at the end of the quarter. Andrew Casino’s Baymount Management also initiated a $2 million position during the quarter. The other funds with brand new ALB positions are Brandon Haley’s Holocene Advisors, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Minhua Zhang’s Weld Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Albemarle Corporation (NYSE:ALB) but similarly valued. These stocks are Immunomedics, Inc. (NASDAQ:IMMU), Royal Gold, Inc (NASDAQ:RGLD), Mobile TeleSystems OJSC (NYSE:MBT), SEI Investments Company (NASDAQ:SEIC), Amdocs Limited (NYSE:DOX), ON Semiconductor Corporation (NASDAQ:ON), and InterContinental Hotels Group PLC (NYSE:IHG). This group of stocks’ market valuations match ALB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMMU | 48 | 2295437 | 21 |
| RGLD | 27 | 425497 | -1 |
| MBT | 11 | 344072 | 2 |
| SEIC | 37 | 233631 | 4 |
| DOX | 27 | 406760 | 4 |
| ON | 32 | 504577 | 3 |
| IHG | 5 | 5206 | 1 |
| Average | 26.7 | 602169 | 4.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $602 million. That figure was $67 million in ALB’s case. Immunomedics, Inc. (NASDAQ:IMMU) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 5 bullish hedge fund positions. Albemarle Corporation (NYSE:ALB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALB is 48. 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 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on ALB as the stock returned 9.9% since the end of June (through September 25th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
