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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Entegris Inc (NASDAQ:ENTG).
Entegris Inc (NASDAQ:ENTG) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. ENTG shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. There were 30 hedge funds in our database with ENTG positions at the end of the previous quarter. Our calculations also showed that ENTG 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).
In the 21st century investor’s toolkit there are plenty of formulas stock market investors have at their disposal to analyze publicly traded companies. A pair of the most underrated formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can outpace the market by a solid margin (see the details here).
Harold Levy of Iridian Asset Management
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 we’re going to take a glance at the key hedge fund action surrounding Entegris Inc (NASDAQ:ENTG).
How have hedgies been trading Entegris Inc (NASDAQ:ENTG)?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ENTG over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, GMT Capital, managed by Thomas E. Claugus, holds the most valuable position in Entegris Inc (NASDAQ:ENTG). GMT Capital has a $295.1 million position in the stock, comprising 11.4% of its 13F portfolio. Coming in second is Iridian Asset Management, managed by David Cohen and Harold Levy, which holds a $135.7 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish consist of William von Mueffling’s Cantillon Capital Management, Robert G. Moses’s RGM Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position GMT Capital allocated the biggest weight to Entegris Inc (NASDAQ:ENTG), around 11.39% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, setting aside 3.93 percent of its 13F equity portfolio to ENTG.
Seeing as Entegris Inc (NASDAQ:ENTG) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds who were dropping their positions entirely last quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group sold off the largest position of the 750 funds tracked by Insider Monkey, comprising about $10.8 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $3.8 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Entegris Inc (NASDAQ:ENTG) but similarly valued. We will take a look at Reata Pharmaceuticals, Inc. (NASDAQ:RETA), Dr. Reddy’s Laboratories Limited (NYSE:RDY), Americold Realty Trust (NYSE:COLD), and New Residential Investment Corp (NYSE:NRZ). This group of stocks’ market caps are closest to ENTG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RETA | 29 | 651033 | 7 |
| RDY | 12 | 109916 | -1 |
| COLD | 26 | 360194 | -5 |
| NRZ | 23 | 129808 | 3 |
| Average | 22.5 | 312738 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $776 million in ENTG’s case. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 12 bullish hedge fund positions. Entegris Inc (NASDAQ:ENTG) is not the most popular stock in this group but hedge fund interest is still above average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on ENTG as the stock returned -16.6% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
