Was The Smart Money Right About Schlumberger (SLB)?

In this article we will take a look at whether hedge funds think Schlumberger Limited. (NYSE:SLB) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Schlumberger Limited. (NYSE:SLB) undervalued? Money managers were becoming less hopeful. The number of bullish hedge fund positions were trimmed by 3 in recent months. Schlumberger Limited. (NYSE:SLB) was in 50 hedge funds’ portfolios at the end of December. The all time high for this statistic is 61. Our calculations also showed that SLB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 53 hedge funds in our database with SLB positions at the end of the third quarter.

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 124 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.

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks 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. Now let’s take a look at the new hedge fund action surrounding Schlumberger Limited. (NYSE:SLB).

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

Heading into the first quarter of 2021, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the third quarter of 2020. On the other hand, there were a total of 47 hedge funds with a bullish position in SLB 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.

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the number one position in Schlumberger Limited. (NYSE:SLB). Fisher Asset Management has a $308.5 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is D E Shaw, led by D. E. Shaw, holding a $165.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Schlumberger Limited. (NYSE:SLB), around 2.85% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, dishing out 2.68 percent of its 13F equity portfolio to SLB.

Judging by the fact that Schlumberger Limited. (NYSE:SLB) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds that elected to cut their full holdings last quarter. Intriguingly, Brandon Haley’s Holocene Advisors cut the largest stake of all the hedgies tracked by Insider Monkey, valued at about $34.3 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $15.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Schlumberger Limited. (NYSE:SLB) but similarly valued. These stocks are Copart, Inc. (NASDAQ:CPRT), Datadog, Inc. (NASDAQ:DDOG), Chunghwa Telecom Co., Ltd (NYSE:CHT), PACCAR Inc (NASDAQ:PCAR), Bilibili Inc. (NASDAQ:BILI), Eversource Energy (NYSE:ES), and Public Service Enterprise Group Incorporated (NYSE:PEG). All of these stocks’ market caps are closest to SLB’s market cap.

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As you can see these stocks had an average of 33.6 hedge funds with bullish positions and the average amount invested in these stocks was $1226 million. That figure was $1226 million in SLB’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 5 bullish hedge fund positions. Schlumberger Limited. (NYSE:SLB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SLB is 74.5. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on SLB as the stock returned 24.5% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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