Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: NewMarket Corporation (NYSE:NEU).
NewMarket Corporation (NYSE:NEU) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that NEU isn’t among the 30 most popular stocks among hedge funds (view 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.
We’re going to review the latest hedge fund action surrounding NewMarket Corporation (NYSE:NEU).
How are hedge funds trading NewMarket Corporation (NYSE:NEU)?
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in NEU a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Winton Capital Management, managed by David Harding, holds the largest position in NewMarket Corporation (NYSE:NEU). Winton Capital Management has a $23.9 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $16 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers with similar optimism consist of Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Mario Gabelli’s GAMCO Investors.
Because NewMarket Corporation (NYSE:NEU) has witnessed falling interest from hedge fund managers, logic holds that there exists a select few funds that elected to cut their full holdings last quarter. Intriguingly, D. E. Shaw’s D E Shaw dumped the biggest position of the 750 funds watched by Insider Monkey, valued at an estimated $0.9 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund dumped about $0.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to NewMarket Corporation (NYSE:NEU). These stocks are Highwoods Properties Inc (NYSE:HIW), Foot Locker, Inc. (NYSE:FL), Six Flags Entertainment Corp (NYSE:SIX), and The Boston Beer Company Inc (NYSE:SAM). All of these stocks’ market caps resemble NEU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HIW | 13 | 165968 | -1 |
| FL | 32 | 592888 | -3 |
| SIX | 30 | 741613 | 0 |
| SAM | 23 | 591137 | 1 |
| Average | 24.5 | 522902 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $523 million. That figure was $89 million in NEU’s case. Foot Locker, Inc. (NYSE:FL) is the most popular stock in this table. On the other hand Highwoods Properties Inc (NYSE:HIW) is the least popular one with only 13 bullish hedge fund positions. NewMarket Corporation (NYSE:NEU) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on NEU as the stock returned 18.2% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
