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 (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 latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Valero Energy Corporation (NYSE:VLO) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Valero Energy Corporation (NYSE:VLO) has seen an increase in enthusiasm from smart money lately. Our calculations also showed that VLO 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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset 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 Valero Energy Corporation (NYSE:VLO).
What have hedge funds been doing with Valero Energy Corporation (NYSE:VLO)?
At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VLO over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Valero Energy Corporation (NYSE:VLO) was held by AQR Capital Management, which reported holding $127.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $104 million position. Other investors bullish on the company included Two Sigma Advisors, Arosa Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Arosa Capital Management allocated the biggest weight to Valero Energy Corporation (NYSE:VLO), around 11.61% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, designating 3.41 percent of its 13F equity portfolio to VLO.
Now, key money managers have jumped into Valero Energy Corporation (NYSE:VLO) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the largest position in Valero Energy Corporation (NYSE:VLO). Balyasny Asset Management had $45.2 million invested in the company at the end of the quarter. Sara Nainzadeh’s Centenus Global Management also made a $6.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Matthew L Pinz’s Pinz Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Valero Energy Corporation (NYSE:VLO) but similarly valued. We will take a look at Canadian Natural Resources Limited (NYSE:CNQ), Dell Technologies Inc. (NYSE:DELL), Delta Air Lines, Inc. (NYSE:DAL), and Workday Inc (NASDAQ:WDAY). All of these stocks’ market caps match VLO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNQ | 29 | 530611 | -5 |
| DELL | 41 | 2361969 | -6 |
| DAL | 70 | 7037405 | -1 |
| WDAY | 55 | 2251111 | 11 |
| Average | 48.75 | 3045274 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.75 hedge funds with bullish positions and the average amount invested in these stocks was $3045 million. That figure was $636 million in VLO’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Canadian Natural Resources Limited (NYSE:CNQ) is the least popular one with only 29 bullish hedge fund positions. Valero Energy Corporation (NYSE:VLO) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately VLO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VLO investors were disappointed as the stock returned -36.5% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.
