Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Sentinel Energy Services Inc. (NASDAQ:STNL) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. STNL was in 15 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with STNL holdings at the end of the previous quarter. Our calculations also showed that stnl isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to analyze the recent hedge fund action surrounding Sentinel Energy Services Inc. (NASDAQ:STNL).
What have hedge funds been doing with Sentinel Energy Services Inc. (NASDAQ:STNL)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STNL over the last 13 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Brenham Capital Management held the most valuable stake in Sentinel Energy Services Inc. (NASDAQ:STNL), which was worth $21.2 million at the end of the third quarter. On the second spot was Baupost Group which amassed $16.4 million worth of shares. Moreover, Angelo Gordon & Co, Adage Capital Management, and Governors Lane were also bullish on Sentinel Energy Services Inc. (NASDAQ:STNL), allocating a large percentage of their portfolios to this stock.
Due to the fact that Sentinel Energy Services Inc. (NASDAQ:STNL) has faced bearish sentiment from the smart money, it’s safe to say that there is a sect of fund managers who sold off their entire stakes in the third quarter. Intriguingly, Isaac Corre’s Governors Lane sold off the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth about $14.7 million in stock, and James Dondero’s Highland Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Sentinel Energy Services Inc. (NASDAQ:STNL). These stocks are Superior Industries International Inc. (NYSE:SUP), Tekla World Healthcare Fund (NYSE:THW), BioSpecifics Technologies Corp. (NASDAQ:BSTC), and Cedar Realty Trust Inc (NYSE:CDR). This group of stocks’ market valuations are similar to STNL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SUP | 16 | 41265 | 5 |
| THW | 1 | 634 | -1 |
| BSTC | 10 | 45243 | 2 |
| CDR | 12 | 24385 | 0 |
| Average | 9.75 | 27882 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $136 million in STNL’s case. Superior Industries International Inc. (NYSE:SUP) is the most popular stock in this table. On the other hand Tekla World Healthcare Fund (NYSE:THW) is the least popular one with only 1 bullish hedge fund positions. Sentinel Energy Services Inc. (NASDAQ:STNL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SUP might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
