“The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery,” This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Hedge fund interest in U.S. Silica Holdings Inc (NYSE:SLCA) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Archrock, Inc. (NYSE:AROC), Masonite International Corp (NYSE:DOOR), and Pitney Bowes Inc. (NYSE:PBI) to gather more data points.
At the moment there are a multitude of gauges shareholders have at their disposal to grade publicly traded companies. A pair of the less known gauges are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the elite money managers can outpace the market by a healthy margin (see the details here).
Noam Gottesman, GLG Partners
We’re going to take a look at the new hedge fund action surrounding U.S. Silica Holdings Inc (NYSE:SLCA).
What have hedge funds been doing with U.S. Silica Holdings Inc (NYSE:SLCA)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in SLCA over the last 15 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Ariel Investments was the largest shareholder of U.S. Silica Holdings Inc (NYSE:SLCA), with a stake worth $170.7 million reported as of the end of March. Trailing Ariel Investments was Rima Senvest Management, which amassed a stake valued at $60.4 million. Citadel Investment Group, Point72 Asset Management, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that U.S. Silica Holdings Inc (NYSE:SLCA) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there exists a select few hedge funds that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dumped the biggest position of the 700 funds monitored by Insider Monkey, comprising an estimated $8.5 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund sold off about $2.3 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as U.S. Silica Holdings Inc (NYSE:SLCA) but similarly valued. These stocks are Archrock, Inc. (NYSE:AROC), Masonite International Corp (NYSE:DOOR), Pitney Bowes Inc. (NYSE:PBI), and Theravance Biopharma Inc (NASDAQ:TBPH). This group of stocks’ market caps match SLCA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AROC | 16 | 39106 | -4 |
| DOOR | 21 | 245812 | 2 |
| PBI | 24 | 104429 | 4 |
| TBPH | 9 | 532693 | 1 |
| Average | 17.5 | 230510 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $301 million in SLCA’s case. Pitney Bowes Inc. (NYSE:PBI) is the most popular stock in this table. On the other hand Theravance Biopharma Inc (NASDAQ:TBPH) is the least popular one with only 9 bullish hedge fund positions. U.S. Silica Holdings Inc (NYSE:SLCA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SLCA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SLCA investors were disappointed as the stock returned -33.3% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
