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 (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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Azul S.A. (NYSE:AZUL), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Azul S.A. (NYSE:AZUL) undervalued? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets went down by 1 lately. Our calculations also showed that AZUL 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).
If you’d ask most traders, hedge funds are assumed to be unimportant, old investment vehicles of the past. While there are more than 8000 funds in operation at the moment, Our researchers look at the moguls of this club, about 850 funds. These investment experts administer bulk of all hedge funds’ total capital, and by watching their matchless stock picks, Insider Monkey has uncovered a few investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Howard Marks of Oaktree Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Azul S.A. (NYSE:AZUL).
What have hedge funds been doing with Azul S.A. (NYSE:AZUL)?
At Q4’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AZUL over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Oaktree Capital Management was the largest shareholder of Azul S.A. (NYSE:AZUL), with a stake worth $46.8 million reported as of the end of September. Trailing Oaktree Capital Management was ZWEIG DIMENNA PARTNERS, which amassed a stake valued at $45.2 million. Driehaus Capital, Contrarian Capital, and ThornTree Capital Partners 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 ThornTree Capital Partners allocated the biggest weight to Azul S.A. (NYSE:AZUL), around 7.61% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, designating 4.51 percent of its 13F equity portfolio to AZUL.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Navellier & Associates. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified AZUL as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks similar to Azul S.A. (NYSE:AZUL). We will take a look at bluebird bio Inc (NASDAQ:BLUE), Emcor Group Inc (NYSE:EME), Graphic Packaging Holding Company (NYSE:GPK), and Black Hills Corporation (NYSE:BKH). This group of stocks’ market values are closest to AZUL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BLUE | 33 | 369218 | 16 |
| EME | 29 | 238201 | 1 |
| GPK | 39 | 550850 | 3 |
| BKH | 24 | 200216 | 3 |
| Average | 31.25 | 339621 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $195 million in AZUL’s case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Black Hills Corporation (NYSE:BKH) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Azul S.A. (NYSE:AZUL) is even less popular than BKH. Hedge funds dodged a bullet by taking a bearish stance towards AZUL. 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 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately AZUL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AZUL investors were disappointed as the stock returned -79.3% 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 most of these stocks already outperformed the market so far in 2020.
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.
