In this article we will take a look at whether hedge funds think StoneMor Inc. (NYSE:STON) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Hedge fund interest in StoneMor Inc. (NYSE:STON) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Kura Sushi USA, Inc. (NASDAQ:KRUS), First United Corp (NASDAQ:FUNC), and Ramaco Resources, Inc. (NASDAQ:METC) to gather more data points. Our calculations also showed that STON isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Andrew Axelrod of Axar Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. 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 look at the latest hedge fund action regarding StoneMor Inc. (NYSE:STON).
How are hedge funds trading StoneMor Inc. (NYSE:STON)?
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. By comparison, 4 hedge funds held shares or bullish call options in STON a year ago. So, let’s find out 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, Andrew Axelrod’s Axar Capital has the largest position in StoneMor Inc. (NYSE:STON), worth close to $51.5 million, accounting for 96.3% of its total 13F portfolio. The second largest stake is held by Nathaniel August of Mangrove Partners, with a $10.1 million position; 1.4% of its 13F portfolio is allocated to the stock. In terms of the portfolio weights assigned to each position Axar Capital allocated the biggest weight to StoneMor Inc. (NYSE:STON), around 96.33% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, earmarking 1.39 percent of its 13F equity portfolio to STON.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as StoneMor Inc. (NYSE:STON) but similarly valued. These stocks are Kura Sushi USA, Inc. (NASDAQ:KRUS), First United Corp (NASDAQ:FUNC), Ramaco Resources, Inc. (NASDAQ:METC), and Harrow Health, Inc. (NASDAQ:HROW). This group of stocks’ market values resemble STON’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KRUS | 5 | 17006 | -3 |
| FUNC | 4 | 5848 | -4 |
| METC | 7 | 2222 | 1 |
| HROW | 13 | 21342 | -2 |
| Average | 7.25 | 11605 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $62 million in STON’s case. Harrow Health, Inc. (NASDAQ:HROW) is the most popular stock in this table. On the other hand First United Corp (NASDAQ:FUNC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks StoneMor Inc. (NYSE:STON) is even less popular than FUNC. Hedge funds dodged a bullet by taking a bearish stance towards STON. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately STON wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); STON investors were disappointed as the stock returned -39.4% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.
