How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Freeport-McMoRan Inc. (NYSE:FCX) and determine whether hedge funds had an edge regarding this stock.
Freeport-McMoRan Inc. (NYSE:FCX) shareholders have witnessed a decrease in hedge fund sentiment lately. Freeport-McMoRan Inc. (NYSE:FCX) was in 66 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 76. There were 76 hedge funds in our database with FCX positions at the end of the second quarter. Our calculations also showed that FCX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Keeping this in mind let’s take a peek at the fresh hedge fund action regarding Freeport-McMoRan Inc. (NYSE:FCX).
Crispin Odey of Odey Asset Management Group
Do Hedge Funds Think FCX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FCX over the last 25 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Freeport-McMoRan Inc. (NYSE:FCX) was held by Fisher Asset Management, which reported holding $1528.6 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $296.9 million position. Other investors bullish on the company included D E Shaw, Lansdowne Partners, and Duquesne Capital. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Freeport-McMoRan Inc. (NYSE:FCX), around 8.68% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, setting aside 5.63 percent of its 13F equity portfolio to FCX.
Judging by the fact that Freeport-McMoRan Inc. (NYSE:FCX) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers who sold off their entire stakes heading into Q4. It’s worth mentioning that Matthew Stadelman’s Diamond Hill Capital sold off the largest stake of all the hedgies followed by Insider Monkey, comprising an estimated $425.3 million in stock, and Josh Donfeld and David Rogers’s Castle Hook Partners was right behind this move, as the fund dumped about $47.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 10 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Freeport-McMoRan Inc. (NYSE:FCX). These stocks are Fortinet Inc (NASDAQ:FTNT), Agilent Technologies Inc. (NYSE:A), Enterprise Products Partners L.P. (NYSE:EPD), American International Group Inc (NYSE:AIG), Exelon Corporation (NASDAQ:EXC), TC Energy Corporation (NYSE:TRP), and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). This group of stocks’ market caps resemble FCX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTNT | 38 | 1139238 | 6 |
| A | 46 | 3135637 | 7 |
| EPD | 25 | 233255 | -3 |
| AIG | 30 | 1904264 | -9 |
| EXC | 36 | 1108781 | 1 |
| TRP | 15 | 84084 | -7 |
| VRTX | 55 | 2713283 | -5 |
| Average | 35 | 1474077 | -1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1474 million. That figure was $3213 million in FCX’s case. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 15 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 71.1. 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 returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on FCX as the stock returned 15% since the end of September (through 1/31) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
