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. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Stantec Inc. (NYSE:STN).
Is Stantec Inc. (NYSE:STN) worth your attention right now? Prominent investors are turning bullish. The number of long hedge fund positions rose by 2 recently. Our calculations also showed that STN 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).
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’ 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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Jonathan Barrett of Luminus 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 we’re going to take a peek at the recent hedge fund action encompassing Stantec Inc. (NYSE:STN).
How have hedgies been trading Stantec Inc. (NYSE:STN)?
At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STN over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathan Barrett and Paul Segal’s Luminus Management has the number one position in Stantec Inc. (NYSE:STN), worth close to $34.3 million, corresponding to 1.4% of its total 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $23.2 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish comprise D. E. Shaw’s D E Shaw, Paul Marshall and Ian Wace’s Marshall Wace LLP and Renaissance Technologies. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Stantec Inc. (NYSE:STN), around 1.43% of its 13F portfolio. Galibier Capital Management is also relatively very bullish on the stock, dishing out 1.03 percent of its 13F equity portfolio to STN.
As aggregate interest increased, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the most outsized position in Stantec Inc. (NYSE:STN). Millennium Management had $1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.8 million investment in the stock during the quarter.
Let’s now review hedge fund activity in other stocks similar to Stantec Inc. (NYSE:STN). We will take a look at Barnes Group Inc. (NYSE:B), Cedar Fair, L.P. (NYSE:FUN), Spectrum Brands Holdings, Inc. (NYSE:SPB), and Select Medical Holdings Corporation (NYSE:SEM). This group of stocks’ market caps resemble STN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| B | 11 | 26705 | -5 |
| FUN | 9 | 80652 | -4 |
| SPB | 45 | 556205 | 9 |
| SEM | 21 | 127591 | 1 |
| Average | 21.5 | 197788 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $92 million in STN’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand Cedar Fair, L.P. (NYSE:FUN) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Stantec Inc. (NYSE:STN) is even less popular than FUN. Hedge funds clearly dropped the ball on STN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on STN as the stock returned -3.3% during the same time period and outperformed the market by an even larger margin.
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.
