Was The Smart Money Right About Freeport-McMoRan Inc. (FCX)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Freeport-McMoRan Inc. (NYSE:FCX).

Freeport-McMoRan Inc. (NYSE:FCX) was in 76 hedge funds’ portfolios at the end of June. The all time high for this statistic is 68. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. FCX investors should be aware of an increase in activity from the world’s largest hedge funds of late. There were 68 hedge funds in our database with FCX positions at the end of the first quarter. Our calculations also showed that FCX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 79 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.

Ken Griffin of Citadel Investment Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s view the latest hedge fund action encompassing Freeport-McMoRan Inc. (NYSE:FCX).

Do Hedge Funds Think FCX Is A Good Stock To Buy Now?

At Q2’s end, a total of 76 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 53 hedge funds with a bullish position in FCX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of Freeport-McMoRan Inc. (NYSE:FCX), with a stake worth $1692.2 million reported as of the end of June. Trailing Fisher Asset Management was Diamond Hill Capital, which amassed a stake valued at $425.3 million. Lansdowne Partners, Duquesne Capital, and Citadel Investment Group 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 Kadensa Capital allocated the biggest weight to Freeport-McMoRan Inc. (NYSE:FCX), around 14.97% of its 13F portfolio. Napier Park Global Capital is also relatively very bullish on the stock, dishing out 12.12 percent of its 13F equity portfolio to FCX.

As industrywide interest jumped, key money managers were breaking ground themselves. Diamond Hill Capital, managed by Matthew Stadelman, created the most valuable position in Freeport-McMoRan Inc. (NYSE:FCX). Diamond Hill Capital had $425.3 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also made a $22.3 million investment in the stock during the quarter. The other funds with brand new FCX positions are John Smith Clark’s Southpoint Capital Advisors, Ryan Caldwell’s Chiron Investment Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Freeport-McMoRan Inc. (NYSE:FCX) but similarly valued. We will take a look at Ambev SA (NYSE:ABEV), BioNTech SE (NASDAQ:BNTX), Aon plc (NYSE:AON), IDEXX Laboratories, Inc. (NASDAQ:IDXX), General Dynamics Corporation (NYSE:GD), Takeda Pharmaceutical Company Limited (NYSE:TAK), and Enterprise Products Partners L.P. (NYSE:EPD). This group of stocks’ market valuations are similar to FCX’s market valuation.

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As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $2803 million. That figure was $3870 million in FCX’s case. Aon plc (NYSE:AON) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Freeport-McMoRan Inc. (NYSE:FCX) is more popular among hedge funds. Our overall hedge fund sentiment score for FCX is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately FCX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FCX were disappointed as the stock returned 2.1% since the end of the second quarter (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.

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