Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Albemarle Corporation (NYSE:ALB)? The smart money sentiment can provide an answer to this question.
Is Albemarle Corporation (NYSE:ALB) a healthy stock for your portfolio? The best stock pickers are getting less optimistic. The number of bullish hedge fund bets were cut by 7 recently. Our calculations also showed that ALB isn’t among the 30 most popular stocks among hedge funds (see the video below). ALB was in 18 hedge funds’ portfolios at the end of June. There were 25 hedge funds in our database with ALB positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the new hedge fund action encompassing Albemarle Corporation (NYSE:ALB).
What does smart money think about Albemarle Corporation (NYSE:ALB)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ALB over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, David Cohen and Harold Levy’s Iridian Asset Management has the number one position in Albemarle Corporation (NYSE:ALB), worth close to $103.6 million, accounting for 1.5% of its total 13F portfolio. The second most bullish fund manager is Moore Global Investments, managed by Louis Bacon, which holds a $27.5 million position; 0.6% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish contain Robert Polak’s Anchor Bolt Capital, and Noam Gottesman’s GLG Partners.
Judging by the fact that Albemarle Corporation (NYSE:ALB) has experienced bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of money managers that elected to cut their entire stakes in the second quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $17 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dropped about $6.1 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 7 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Albemarle Corporation (NYSE:ALB) but similarly valued. These stocks are FLIR Systems, Inc. (NASDAQ:FLIR), CAE, Inc. (NYSE:CAE), AMERCO (NASDAQ:UHAL), and Amarin Corporation plc (NASDAQ:AMRN). This group of stocks’ market valuations resemble ALB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FLIR | 20 | 434610 | -12 |
| CAE | 10 | 169159 | 0 |
| UHAL | 15 | 400823 | 3 |
| AMRN | 33 | 1835664 | 7 |
| Average | 19.5 | 710064 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $710 million. That figure was $203 million in ALB’s case. Amarin Corporation plc (NASDAQ:AMRN) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 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. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ALB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALB investors were disappointed as the stock returned -0.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
