Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Schlumberger Limited. (NYSE:SLB).
Is Schlumberger Limited. (NYSE:SLB) an outstanding investment right now? The smart money is becoming hopeful. The number of long hedge fund positions rose by 8 recently. Our calculations also showed that SLB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a gander at the key hedge fund action surrounding Schlumberger Limited. (NYSE:SLB).
How have hedgies been trading Schlumberger Limited. (NYSE:SLB)?
At the end of the third quarter, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SLB over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher’s Fisher Asset Management has the number one position in Schlumberger Limited. (NYSE:SLB), worth close to $420.1 million, amounting to 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Charles de Vaulx of International Value Advisers, with a $178.8 million position; the fund has 6.6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise David E. Shaw’s D E Shaw, William B. Gray’s Orbis Investment Management and John W. Rogers’s Ariel Investments. In terms of the portfolio weights assigned to each position GeoSphere Capital Management allocated the biggest weight to Schlumberger Limited. (NYSE:SLB), around 9.42% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, dishing out 6.62 percent of its 13F equity portfolio to SLB.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Pzena Investment Management, managed by Richard S. Pzena, assembled the largest position in Schlumberger Limited. (NYSE:SLB). Pzena Investment Management had $30.8 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $12.6 million position during the quarter. The other funds with new positions in the stock are Javier Velazquez’s Albar Capital, Till Bechtolsheimer’s Arosa Capital Management, and George Soros’s Soros Fund Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Schlumberger Limited. (NYSE:SLB) but similarly valued. We will take a look at Bank of Montreal (NYSE:BMO), Exelon Corporation (NYSE:EXC), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), and Kinder Morgan Inc (NYSE:KMI). This group of stocks’ market valuations are closest to SLB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BMO | 14 | 393078 | 1 |
| EXC | 34 | 2029376 | 2 |
| SMFG | 10 | 553308 | -4 |
| KMI | 33 | 1467589 | -4 |
| Average | 22.75 | 1110838 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $1111 million. That figure was $1247 million in SLB’s case. Exelon Corporation (NYSE:EXC) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Schlumberger Limited. (NYSE:SLB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately SLB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SLB were disappointed as the stock returned 19.5% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
