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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Sensata Technologies Holding N.V. (NYSE:ST) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Sensata Technologies Holding N.V. (NYSE:ST) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2019. 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 News Corp (NASDAQ:NWS), Coty Inc (NYSE:COTY), and Euronet Worldwide, Inc. (NASDAQ:EEFT) to gather more data points. Our calculations also showed that ST 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).
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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
William Von Mueffling of Cantillon Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now we’re going to take a peek at the latest hedge fund action surrounding Sensata Technologies Holding N.V. (NYSE:ST).
What have hedge funds been doing with Sensata Technologies Holding N.V. (NYSE:ST)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in ST a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, David Blood and Al Gore’s Generation Investment Management has the most valuable position in Sensata Technologies Holding N.V. (NYSE:ST), worth close to $630.6 million, corresponding to 4% of its total 13F portfolio. The second most bullish fund manager is William B. Gray of Orbis Investment Management, with a $210.9 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism encompass Ric Dillon’s Diamond Hill Capital, William von Mueffling’s Cantillon Capital Management and Ian Simm’s Impax Asset Management. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to Sensata Technologies Holding N.V. (NYSE:ST), around 4.03% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, earmarking 3.2 percent of its 13F equity portfolio to ST.
Because Sensata Technologies Holding N.V. (NYSE:ST) has experienced bearish sentiment from the smart money, we can see that there is a sect of funds that elected to cut their entire stakes by the end of the third quarter. It’s worth mentioning that Jeffrey Gates’s Gates Capital Management dropped the biggest position of all the hedgies monitored by Insider Monkey, valued at close to $68.1 million in stock. David Steinberg and Eric Udoff’s fund, Marlowe Partners, also dumped its stock, about $6.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sensata Technologies Holding N.V. (NYSE:ST) but similarly valued. These stocks are News Corp (NASDAQ:NWS), Coty Inc (NYSE:COTY), Euronet Worldwide, Inc. (NASDAQ:EEFT), and Molina Healthcare, Inc. (NYSE:MOH). This group of stocks’ market values are closest to ST’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWS | 7 | 31884 | -5 |
| COTY | 29 | 346957 | 4 |
| EEFT | 47 | 410495 | 11 |
| MOH | 35 | 1277477 | 8 |
| Average | 29.5 | 516703 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $517 million. That figure was $1309 million in ST’s case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 7 bullish hedge fund positions. Sensata Technologies Holding N.V. (NYSE:ST) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately ST wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ST investors were disappointed as the stock returned -48.2% 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 most of these stocks already outperformed the market in Q1.
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.
