We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Halliburton Company (NYSE:HAL) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Halliburton Company (NYSE:HAL) the right investment to pursue these days? Investors who are in the know are getting less bullish. The number of long hedge fund positions fell by 4 recently. Our calculations also showed that HAL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joel Greenblatt of Gotham Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now we’re going to view the key hedge fund action encompassing Halliburton Company (NYSE:HAL).
What have hedge funds been doing with Halliburton Company (NYSE:HAL)?
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HAL over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the number one position in Halliburton Company (NYSE:HAL), worth close to $772.4 million, accounting for 3.6% of its total 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $202.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish comprise Ken Fisher’s Fisher Asset Management, and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Halliburton Company (NYSE:HAL), around 3.61% of its 13F portfolio. Arrowgrass Capital Partners is also relatively very bullish on the stock, earmarking 2.12 percent of its 13F equity portfolio to HAL.
Judging by the fact that Halliburton Company (NYSE:HAL) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedge funds who were dropping their entire stakes heading into Q4. Intriguingly, Benjamin A. Smith’s Laurion Capital Management cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $25 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $18.6 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Halliburton Company (NYSE:HAL) but similarly valued. We will take a look at Sprint Corporation (NYSE:S), ORIX Corporation (NYSE:IX), Wipro Limited (NYSE:WIT), and Boston Properties, Inc. (NYSE:BXP). This group of stocks’ market valuations are similar to HAL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| S | 35 | 778974 | 11 |
| IX | 6 | 8292 | 1 |
| WIT | 12 | 98211 | 0 |
| BXP | 20 | 450068 | -7 |
| Average | 18.25 | 333886 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $334 million. That figure was $1208 million in HAL’s case. Sprint Corporation (NYSE:S) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 6 bullish hedge fund positions. Halliburton Company (NYSE:HAL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately HAL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HAL were disappointed as the stock returned -75.5% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
