How do you pick the next stock to invest in? One way would be to spend hours 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 have 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 Sunoco LP (NYSE:SUN).
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Is Sunoco LP (NYSE:SUN) ready to rally soon? Prominent investors are in a bearish mood. The number of bullish hedge fund positions stayed the same in the third quarter, which is a slightly negative development in our experience. Sunoco LP (NYSE:SUN) was in ten hedge funds’ portfolios at the end of September. There were ten hedge funds in our database with Sunoco LP (NYSE:SUN) positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Golar LNG Limited (USA) (NASDAQ:GLNG), The Wendy’s Company (NASDAQ:WEN), and Avolon Holdings Ltd (NYSE:AVOL) to gather more data points.
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In the financial world there are a lot of methods investors have at their disposal to grade their stock investments. A duo of the most innovative methods are hedge fund and insider trading activity. Experts at Insider Monkey, a website specializing in hedge funds, have shown that, historically, those who follow the best picks of the elite money managers can outperform the broader indices by a healthy amount (see the details here).
Keeping this in mind, we’re going to go over the new action regarding Sunoco LP (NYSE:SUN).
What does the smart money think about Sunoco LP (NYSE:SUN)?
Heading into Q4, a total of ten of the hedge funds tracked by Insider Monkey were bullish in this stock, flat over the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund holdings data compiled by Insider Monkey, Jonathan Lourie and Stuart Fiertz’s Cheyne Capital has the most valuable position in Sunoco LP (NYSE:SUN), worth close to $36.1 million, amounting to 17% of its total 13F portfolio. The second-largest stake is held by Charles Davidson of Wexford Capital, with a $13.8 million position; the fund manager has 2.7% of his 13F portfolio invested in the stock. Some other peers with similar optimism include Israel Englander’s Millennium Management, Matthew Hulsizer’s PEAK6 Capital Management, and Ed Bosek’s BeaconLight Capital.
Seeing as Sunoco LP (NYSE:SUN) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few money managers who sold off their positions entirely last quarter. At the top of the heap, David Atterbury’s Whetstone Capital Advisors dropped the biggest stake of all the hedgies followed by Insider Monkey, totaling about $1.1 million in stock, while Millennium Management Subsidiary of Green Arrow Capital Management was right behind this move, as the fund dropped about $1 million worth of shares. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also review hedge fund activity in other stocks similar to Sunoco LP (NYSE:SUN). These stocks are Golar LNG Limited (USA) (NASDAQ:GLNG), The Wendy’s Company (NASDAQ:WEN), Avolon Holdings Ltd (NYSE:AVOL), and UMB Financial Corporation (NASDAQ:UMBF). This group of stocks’ market valuations resemble Sunoco LP (NYSE:SUN)’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GLNG | 39 | 682454 | -5 |
| WEN | 26 | 632213 | -12 |
| AVOL | 12 | 185412 | -3 |
| UMBF | 11 | 68988 | 0 |
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $392 million, compared to just $57 million invested in Sunoco LP. Golar LNG Limited (USA) (NASDAQ:GLNG) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Sunoco LP (NYSE:SUN) is even less popular than UMB Financial Corporation (NASDAQ:UMBF). Considering that hedge funds aren’t fond of this stock, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
