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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of International Paper Company (NYSE:IP).
International Paper Company (NYSE:IP) was in 25 hedge funds’ portfolios at the end of the fourth quarter of 2019. IP investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 28 hedge funds in our database with IP holdings at the end of the previous quarter. Our calculations also showed that IP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
In the 21st century investor’s toolkit there are a lot of methods market participants use to appraise publicly traded companies. A duo of the most useful methods are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the top investment managers can outclass their index-focused peers by a solid amount (see the details here).
Cliff Asness of AQR Capital 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 let’s analyze the latest hedge fund action encompassing International Paper Company (NYSE:IP).
How have hedgies been trading International Paper Company (NYSE:IP)?
Heading into the first quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the third quarter of 2019. On the other hand, there were a total of 34 hedge funds with a bullish position in IP a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in International Paper Company (NYSE:IP) was held by AQR Capital Management, which reported holding $150.9 million worth of stock at the end of September. It was followed by Adage Capital Management with a $21.4 million position. Other investors bullish on the company included Citadel Investment Group, 12th Street Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to International Paper Company (NYSE:IP), around 4.22% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, designating 0.69 percent of its 13F equity portfolio to IP.
Judging by the fact that International Paper Company (NYSE:IP) has witnessed a decline in interest from the smart money, we can see that there lies a certain “tier” of fund managers who were dropping their positions entirely last quarter. Interestingly, Renaissance Technologies said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at about $21.2 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $6.9 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as International Paper Company (NYSE:IP) but similarly valued. These stocks are Yum China Holdings, Inc. (NYSE:YUMC), CMS Energy Corporation (NYSE:CMS), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Arthur J. Gallagher & Co. (NYSE:AJG). This group of stocks’ market caps are similar to IP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| YUMC | 29 | 699257 | -5 |
| CMS | 30 | 526352 | 0 |
| MRVL | 29 | 584397 | -5 |
| AJG | 31 | 395355 | 4 |
| Average | 29.75 | 551340 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $551 million. That figure was $273 million in IP’s case. Arthur J. Gallagher & Co. (NYSE:AJG) is the most popular stock in this table. On the other hand Yum China Holdings, Inc. (NYSE:YUMC) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks International Paper Company (NYSE:IP) is even less popular than YUMC. Hedge funds dodged a bullet by taking a bearish stance towards IP. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 3.2 percentage points. Unfortunately IP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); IP investors were disappointed as the stock returned -34.7% 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 most of these stocks already outperformed the market so far in Q1.
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.
