Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published 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 (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 analyze whether Xerox Corporation (NYSE:XRX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Xerox Corporation (NYSE:XRX) has experienced an increase in enthusiasm from smart money of late. Our calculations also showed that XRX 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).
In the eyes of most stock holders, hedge funds are assumed to be worthless, outdated investment vehicles of the past. While there are greater than 8000 funds trading at the moment, Our researchers hone in on the elite of this group, approximately 850 funds. It is estimated that this group of investors control most of all hedge funds’ total capital, and by paying attention to their inimitable stock picks, Insider Monkey has spotted various investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Carl Icahn of Icahn Capital
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. With all of this in mind let’s review the recent hedge fund action regarding Xerox Corporation (NYSE:XRX).
What have hedge funds been doing with Xerox Corporation (NYSE:XRX)?
At the end of the fourth quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the third quarter of 2019. On the other hand, there were a total of 44 hedge funds with a bullish position in XRX a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Icahn Capital LP was the largest shareholder of Xerox Corporation (NYSE:XRX), with a stake worth $864.8 million reported as of the end of September. Trailing Icahn Capital LP was AQR Capital Management, which amassed a stake valued at $235.1 million. Coatue Management, Arrowstreet Capital, and Falcon Edge Capital 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 Falcon Edge Capital allocated the biggest weight to Xerox Corporation (NYSE:XRX), around 6.43% of its 13F portfolio. Icahn Capital LP is also relatively very bullish on the stock, dishing out 3.3 percent of its 13F equity portfolio to XRX.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Coatue Management, managed by Philippe Laffont, established the largest position in Xerox Corporation (NYSE:XRX). Coatue Management had $72.7 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $24.5 million position during the quarter. The following funds were also among the new XRX investors: Carl Tiedemann and Michael Tiedemann’s TIG Advisors, Simon Sadler’s Segantii Capital, and Phill Gross and Robert Atchinson’s Adage Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Xerox Corporation (NYSE:XRX) but similarly valued. We will take a look at Ares Capital Corporation (NASDAQ:ARCC), Peloton Interactive, Inc. (NASDAQ:PTON), Assurant, Inc. (NYSE:AIZ), and Santander Consumer USA Holdings Inc (NYSE:SC). This group of stocks’ market values match XRX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARCC | 22 | 262419 | -1 |
| PTON | 30 | 383046 | 3 |
| AIZ | 25 | 886201 | -5 |
| SC | 27 | 845363 | 2 |
| Average | 26 | 594257 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $594 million. That figure was $1459 million in XRX’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand Ares Capital Corporation (NASDAQ:ARCC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Xerox Corporation (NYSE:XRX) is more popular among hedge funds. 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 and still beat the market by 3.2 percentage points. Unfortunately XRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on XRX were disappointed as the stock returned -45.9% during the first two and a half months of 2020 (through March 16th) 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.
