Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish 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.
Is United Parcel Service, Inc. (NYSE:UPS) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
United Parcel Service, Inc. (NYSE:UPS) was in 42 hedge funds’ portfolios at the end of the fourth quarter of 2019. UPS shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 45 hedge funds in our database with UPS holdings at the end of the previous quarter. Our calculations also showed that UPS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
At the moment there are a lot of metrics investors have at their disposal to assess publicly traded companies. Some of the less known metrics are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the elite hedge fund managers can outpace the S&P 500 by a solid margin (see the details here).
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a glance at the key hedge fund action encompassing United Parcel Service, Inc. (NYSE:UPS).
How are hedge funds trading United Parcel Service, Inc. (NYSE:UPS)?
At the end of the fourth quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the third quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in UPS a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Bill & Melinda Gates Foundation Trust was the largest shareholder of United Parcel Service, Inc. (NYSE:UPS), with a stake worth $529.7 million reported as of the end of September. Trailing Bill & Melinda Gates Foundation Trust was Two Sigma Advisors, which amassed a stake valued at $134.2 million. Citadel Investment Group, Adage Capital Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to United Parcel Service, Inc. (NYSE:UPS), around 2.48% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, setting aside 1.26 percent of its 13F equity portfolio to UPS.
Due to the fact that United Parcel Service, Inc. (NYSE:UPS) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that elected to cut their entire stakes last quarter. At the top of the heap, Aaron Cowen’s Suvretta Capital Management dumped the largest investment of all the hedgies watched by Insider Monkey, totaling close to $141.5 million in call options, and Aaron Cowen’s Suvretta Capital Management was right behind this move, as the fund cut about $34.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to United Parcel Service, Inc. (NYSE:UPS). These stocks are Rio Tinto Group (NYSE:RIO), General Electric Company (NYSE:GE), British American Tobacco plc (NYSE:BTI), and CVS Health Corporation (NYSE:CVS). This group of stocks’ market caps are similar to UPS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RIO | 21 | 1680869 | -1 |
| GE | 60 | 6210817 | 2 |
| BTI | 9 | 607241 | 0 |
| CVS | 58 | 969440 | 7 |
| Average | 37 | 2367092 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $2367 million. That figure was $975 million in UPS’s case. General Electric Company (NYSE:GE) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 9 bullish hedge fund positions. United Parcel Service, Inc. (NYSE:UPS) 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. 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 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately UPS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UPS were disappointed as the stock returned -24.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
