We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Suncor Energy Inc. (NYSE:SU)? The smart money sentiment can provide an answer to this question.
Suncor Energy Inc. (NYSE:SU) was in 39 hedge funds’ portfolios at the end of the fourth quarter of 2019. SU has experienced a decrease in enthusiasm from smart money recently. There were 41 hedge funds in our database with SU holdings at the end of the previous quarter. Our calculations also showed that SU 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Charles Davidson of Wexford Capital
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 fresh hedge fund action surrounding Suncor Energy Inc. (NYSE:SU).
Hedge fund activity in Suncor Energy Inc. (NYSE:SU)
At the end of the fourth quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SU over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Berkshire Hathaway held the most valuable stake in Suncor Energy Inc. (NYSE:SU), which was worth $492.6 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $304.2 million worth of shares. Two Sigma Advisors, Citadel Investment Group, and GLG Partners 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 Heathbridge Capital Management allocated the biggest weight to Suncor Energy Inc. (NYSE:SU), around 6.28% of its 13F portfolio. Soapstone Capital is also relatively very bullish on the stock, earmarking 6.25 percent of its 13F equity portfolio to SU.
Since Suncor Energy Inc. (NYSE:SU) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few money managers who were dropping their entire stakes heading into Q4. Intriguingly, Anand Parekh’s Alyeska Investment Group cut the biggest investment of all the hedgies followed by Insider Monkey, totaling close to $30.1 million in stock, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS was right behind this move, as the fund dropped about $7.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Suncor Energy Inc. (NYSE:SU). These stocks are HCA Healthcare Inc (NYSE:HCA), TC Energy Corporation (NYSE:TRP), Equinix Inc (NASDAQ:EQIX), and Honda Motor Co Ltd (NYSE:HMC). This group of stocks’ market valuations match SU’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HCA | 63 | 3585533 | 3 |
| TRP | 22 | 210177 | 2 |
| EQIX | 43 | 1639342 | 3 |
| HMC | 9 | 148249 | -2 |
| Average | 34.25 | 1395825 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1396 million. That figure was $1487 million in SU’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 9 bullish hedge fund positions. Suncor Energy Inc. (NYSE:SU) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 SU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SU were disappointed as the stock returned -47% 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 many of these stocks already outperformed the market so far this year.
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.
