Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) a bargain? Investors who are in the know are taking a bearish view. The number of long hedge fund bets stayed the same which is a slightly negative development in our experience. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ambarella Inc (NASDAQ:AMBA), Guess?, Inc. (NYSE:GES), and Diplomat Pharmacy Inc (NYSE:DPLO) to gather more data points.
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To most traders, hedge funds are assumed to be worthless, old financial tools of yesteryear. While there are more than 8000 funds trading at the moment, our experts look at the leaders of this club, approximately 700 funds. These money managers handle the majority of the smart money’s total capital, and by observing their inimitable picks, Insider Monkey has figured out various investment strategies that have historically surpassed the market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points a year for a decade in their back tests.
Now, we’re going to take a gander at the fresh action surrounding Calumet Specialty Products Partners, L.P (NASDAQ:CLMT).
What have hedge funds been doing with Calumet Specialty Products Partners, L.P (NASDAQ:CLMT)?
Heading into Q4, a total of 8 of the hedge funds tracked by Insider Monkey were bullish in this stock, flat over the previous quarter. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Matthew Hulsizer’s PEAK6 Capital Management had the biggest call position in Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), worth close to $9.3 million, comprising less than 0.1% of its total 13F portfolio. On PEAK6 Capital Management’s heels is Driehaus Capital, led by Richard Driehaus, holding a $6.2 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedgies that are bullish contain Dmitry Balyasny’s Balyasny Asset Management, Renaissance Technologies and Robert B. Gillam’s McKinley Capital Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was “Balyasny Asset Management).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) but similarly valued. We will take a look at Ambarella Inc (NASDAQ:AMBA), Guess?, Inc. (NYSE:GES), Diplomat Pharmacy Inc (NYSE:DPLO), and Watts Water Technologies Inc (NYSE:WTS). All of these stocks’ market caps are closest to Calumet Specialty Products Partners, L.P (NASDAQ:CLMT)’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMBA | 27 | 324322 | 1 |
| GES | 15 | 153289 | 1 |
| DPLO | 15 | 81680 | 3 |
| WTS | 14 | 321960 | -2 |
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand, Watts Water Technologies Inc (NYSE:WTS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) is even less popular than Watts Water Technologies Inc (NYSE:WTS). Moreover, hedge funds had only $22 invested in the company at the end of September. In this way, considering that hedge funds aren’t fond of this stock, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
