Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Valero Energy Corporation (NYSE:VLO) at the end of the third quarter and determine whether the smart money was really smart about this stock.
Is Valero Energy Corporation (NYSE:VLO) undervalued? Money managers were taking a bearish view. The number of long hedge fund positions fell by 6 lately. Valero Energy Corporation (NYSE:VLO) was in 32 hedge funds’ portfolios at the end of September. The all time high for this statistic is 56. Our calculations also showed that VLO 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. With all of this in mind let’s take a peek at the recent hedge fund action encompassing Valero Energy Corporation (NYSE:VLO).
Matthew Hulsizer of PEAK6 Capital
Do Hedge Funds Think VLO Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in VLO over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Valero Energy Corporation (NYSE:VLO), with a stake worth $122.1 million reported as of the end of September. Trailing Citadel Investment Group was Citadel Investment Group, which amassed a stake valued at $71.2 million. PEAK6 Capital Management, Schonfeld Strategic Advisors, and Renaissance Technologies 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 Solus Alternative Asset Management allocated the biggest weight to Valero Energy Corporation (NYSE:VLO), around 3.32% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, earmarking 2.17 percent of its 13F equity portfolio to VLO.
Because Valero Energy Corporation (NYSE:VLO) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few money managers who sold off their full holdings heading into Q4. Interestingly, Paul Singer’s Elliott Investment Management dropped the biggest investment of the 750 funds followed by Insider Monkey, comprising an estimated $156.2 million in stock. Vince Maddi and Shawn Brennan’s fund, SIR Capital Management, also cut its stock, about $35.4 million worth. These transactions are important to note, as total hedge fund interest was cut by 6 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to Valero Energy Corporation (NYSE:VLO). We will take a look at Orange SA (NYSE:ORAN), Tyson Foods, Inc. (NYSE:TSN), AMETEK, Inc. (NYSE:AME), Genmab A/S (NASDAQ:GMAB), Stanley Black & Decker, Inc. (NYSE:SWK), Chewy, Inc. (NYSE:CHWY), and United Microelectronics Corp (NYSE:UMC). This group of stocks’ market caps are similar to VLO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORAN | 3 | 20523 | 0 |
| TSN | 33 | 865195 | 0 |
| AME | 38 | 1320239 | 0 |
| GMAB | 9 | 122715 | 0 |
| SWK | 37 | 776002 | -7 |
| CHWY | 32 | 376172 | -11 |
| UMC | 13 | 151038 | 3 |
| Average | 23.6 | 518841 | -2.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $519 million. That figure was $289 million in VLO’s case. AMETEK, Inc. (NYSE:AME) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. Valero Energy Corporation (NYSE:VLO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VLO is 57.6. 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on VLO as the stock returned 19.1% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
