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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Sealed Air Corporation (NYSE:SEE).
Sealed Air Corporation (NYSE:SEE) was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. SEE investors should be aware of a decrease in hedge fund interest in recent months. There were 34 hedge funds in our database with SEE positions at the end of the previous quarter. Our calculations also showed that SEE 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).
Today there are many gauges shareholders have at their disposal to size up their holdings. Some of the most underrated gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce the S&P 500 by a superb margin (see the details here).
Michael Lowenstein of Kensico Capital
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 go over the new hedge fund action encompassing Sealed Air Corporation (NYSE:SEE).
What does smart money think about Sealed Air Corporation (NYSE:SEE)?
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SEE over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Kensico Capital was the largest shareholder of Sealed Air Corporation (NYSE:SEE), with a stake worth $251.5 million reported as of the end of September. Trailing Kensico Capital was Rivulet Capital, which amassed a stake valued at $185 million. Nitorum Capital, Impax Asset Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rivulet Capital allocated the biggest weight to Sealed Air Corporation (NYSE:SEE), around 16.38% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, designating 6.2 percent of its 13F equity portfolio to SEE.
Seeing as Sealed Air Corporation (NYSE:SEE) has faced falling interest from the smart money, it’s easy to see that there was a specific group of funds that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that David Harding’s Winton Capital Management said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $23.6 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also cut its stock, about $5.1 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Sealed Air Corporation (NYSE:SEE). These stocks are The Middleby Corporation (NASDAQ:MIDD), Sabre Corporation (NASDAQ:SABR), Israel Chemicals Ltd. (NYSE:ICL), and Lumentum Holdings Inc (NASDAQ:LITE). This group of stocks’ market valuations are closest to SEE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MIDD | 35 | 456204 | 10 |
| SABR | 24 | 204823 | -5 |
| ICL | 6 | 14809 | 1 |
| LITE | 37 | 490022 | 7 |
| Average | 25.5 | 291465 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $861 million in SEE’s case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 6 bullish hedge fund positions. Sealed Air Corporation (NYSE:SEE) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SEE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SEE were disappointed as the stock returned -39.4% 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.
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.
