Did Hedge Funds Drop The Ball On Stepan Company (SCL) ?

We can judge whether Stepan Company (NYSE:SCL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Stepan Company (NYSE:SCL) a buy right now? Money managers are in a pessimistic mood. The number of bullish hedge fund bets decreased by 5 recently. Our calculations also showed that SCL isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are tons of methods investors have at their disposal to value stocks. A couple of the best methods are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can outclass the market by a superb amount (see the details here).

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the fresh hedge fund action surrounding Stepan Company (NYSE:SCL).

How have hedgies been trading Stepan Company (NYSE:SCL)?

At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SCL over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

No of Hedge Funds with SCL Positions

The largest stake in Stepan Company (NYSE:SCL) was held by Renaissance Technologies, which reported holding $30.5 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $13.5 million position. Other investors bullish on the company included GLG Partners, Two Sigma Advisors, and AQR Capital Management.

Judging by the fact that Stepan Company (NYSE:SCL) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of funds that elected to cut their entire stakes heading into Q3. Intriguingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $0.5 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest fell by 5 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Stepan Company (NYSE:SCL). We will take a look at National Beverage Corp. (NASDAQ:FIZZ), Renasant Corporation (NASDAQ:RNST), DiamondRock Hospitality Company (NYSE:DRH), and WesBanco, Inc. (NASDAQ:WSBC). This group of stocks’ market caps are similar to SCL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIZZ 22 261569 1
RNST 11 30890 -5
DRH 17 177431 4
WSBC 10 73062 2
Average 15 135738 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $56 million in SCL’s case. National Beverage Corp. (NASDAQ:FIZZ) is the most popular stock in this table. On the other hand WesBanco, Inc. (NASDAQ:WSBC) is the least popular one with only 10 bullish hedge fund positions. Stepan Company (NYSE:SCL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SCL as the stock returned 5.9% during the same time frame and outperformed the market by an even larger margin.

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