Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Balchem Corporation (NASDAQ:BCPC).
Is Balchem Corporation (NASDAQ:BCPC) a buy, sell, or hold? Prominent investors are betting on the stock. The number of long hedge fund bets rose by 3 recently. Our calculations also showed that BCPC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Chuck Royce of Royce & Associates
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. Keeping this in mind let’s take a gander at the latest hedge fund action surrounding Balchem Corporation (NASDAQ:BCPC).
Hedge fund activity in Balchem Corporation (NASDAQ:BCPC)
Heading into the first quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BCPC over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Balchem Corporation (NASDAQ:BCPC) was held by Royce & Associates, which reported holding $25.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $23.8 million position. Other investors bullish on the company included Horizon Asset Management, Millennium Management, and D E Shaw. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Balchem Corporation (NASDAQ:BCPC), around 0.22% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, setting aside 0.16 percent of its 13F equity portfolio to BCPC.
As aggregate interest increased, some big names were leading the bulls’ herd. D E Shaw, managed by D. E. Shaw, initiated the biggest position in Balchem Corporation (NASDAQ:BCPC). D E Shaw had $1.4 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $1 million position during the quarter. The other funds with brand new BCPC positions are Ken Griffin’s Citadel Investment Group, Benjamin A. Smith’s Laurion Capital Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s check out hedge fund activity in other stocks similar to Balchem Corporation (NASDAQ:BCPC). We will take a look at Investors Bancorp, Inc. (NASDAQ:ISBC), SkyWest, Inc. (NASDAQ:SKYW), Agios Pharmaceuticals Inc (NASDAQ:AGIO), and Magnolia Oil & Gas Corporation (NASDAQ:MGY). All of these stocks’ market caps are similar to BCPC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ISBC | 30 | 262465 | 2 |
| SKYW | 15 | 179258 | -1 |
| AGIO | 23 | 309793 | 6 |
| MGY | 18 | 141829 | 0 |
| Average | 21.5 | 223336 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $63 million in BCPC’s case. Investors Bancorp, Inc. (NASDAQ:ISBC) is the most popular stock in this table. On the other hand SkyWest, Inc. (NASDAQ:SKYW) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Balchem Corporation (NASDAQ:BCPC) is even less popular than SKYW. Hedge funds clearly dropped the ball on BCPC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on BCPC as the stock returned -7.8% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
