Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Koppers Holdings Inc. (NYSE:KOP) changed recently.
Koppers Holdings Inc. (NYSE:KOP) has seen a decrease in hedge fund sentiment recently. KOP was in 12 hedge funds’ portfolios at the end of June. There were 13 hedge funds in our database with KOP holdings at the end of the previous quarter. Our calculations also showed that KOP isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the latest hedge fund action surrounding Koppers Holdings Inc. (NYSE:KOP).
How are hedge funds trading Koppers Holdings Inc. (NYSE:KOP)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KOP over the last 16 quarters. With hedge funds’ capital changing hands, 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 Koppers Holdings Inc. (NYSE:KOP) was held by Mountain Lake Investment Management, which reported holding $16.9 million worth of stock at the end of March. It was followed by Millennium Management with a $8.6 million position. Other investors bullish on the company included D E Shaw, Venator Capital Management, and PEAK6 Capital Management.
Seeing as Koppers Holdings Inc. (NYSE:KOP) has faced declining sentiment from the smart money, it’s safe to say that there is a sect of hedge funds that decided to sell off their entire stakes heading into Q3. At the top of the heap, Alec Litowitz and Ross Laser’s Magnetar Capital dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $0.3 million in stock, and Bradley Louis Radoff’s Fondren Management was right behind this move, as the fund cut about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds heading into Q3.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Koppers Holdings Inc. (NYSE:KOP) but similarly valued. These stocks are Huami Corporation (NYSE:HMI), Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), BlackRock MuniVest Fund, Inc. (NYSE:MVF), and Renewable Energy Group Inc (NASDAQ:REGI). This group of stocks’ market caps resemble KOP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HMI | 6 | 11514 | 2 |
| CRNX | 10 | 267066 | 1 |
| MVF | 1 | 458 | 0 |
| REGI | 17 | 54715 | -2 |
| Average | 8.5 | 83438 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $41 million in KOP’s case. Renewable Energy Group Inc (NASDAQ:REGI) is the most popular stock in this table. On the other hand BlackRock MuniVest Fund, Inc. (NYSE:MVF) is the least popular one with only 1 bullish hedge fund positions. Koppers Holdings Inc. (NYSE:KOP) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KOP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KOP were disappointed as the stock returned -0.5% during the third quarter 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.
