Did Hedge Funds Make The Right Call On Albemarle Corporation (ALB) ?

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 Albemarle Corporation (NYSE:ALB) and determine whether hedge funds had an edge regarding this stock.

Albemarle Corporation (NYSE:ALB) has seen an increase in enthusiasm from smart money lately. Our calculations also showed that ALB isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are several signals shareholders put to use to grade stocks. A couple of the most useful signals are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top money managers can outpace their index-focused peers by a significant margin (see the details here).

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the new hedge fund action regarding Albemarle Corporation (NYSE:ALB).

How have hedgies been trading Albemarle Corporation (NYSE:ALB)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the fourth quarter of 2019. By comparison, 25 hedge funds held shares or bullish call options in ALB a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is ALB A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathan Barrett and Paul Segal’s Luminus Management has the largest position in Albemarle Corporation (NYSE:ALB), worth close to $25.4 million, corresponding to 2.6% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $18.8 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Israel Englander’s Millennium Management, Chuck Royce’s Royce & Associates and Joe DiMenna’s ZWEIG DIMENNA PARTNERS. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Albemarle Corporation (NYSE:ALB), around 2.62% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, earmarking 2.62 percent of its 13F equity portfolio to ALB.

As industrywide interest jumped, some big names have been driving this bullishness. Luminus Management, managed by Jonathan Barrett and Paul Segal, assembled the most outsized position in Albemarle Corporation (NYSE:ALB). Luminus Management had $25.4 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also initiated a $4.9 million position during the quarter. The other funds with brand new ALB positions are Michael Cowley’s Sandbar Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks similar to Albemarle Corporation (NYSE:ALB). These stocks are Vail Resorts, Inc. (NYSE:MTN), Snap-on Incorporated (NYSE:SNA), Gaming and Leisure Properties Inc (NASDAQ:GLPI), and Newell Brands Inc. (NYSE:NWL). This group of stocks’ market values match ALB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTN 37 579984 4
SNA 26 285106 -1
GLPI 35 475226 6
NWL 24 1004534 -7
Average 30.5 586213 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $586 million. That figure was $73 million in ALB’s case. Vail Resorts, Inc. (NYSE:MTN) is the most popular stock in this table. On the other hand Newell Brands Inc. (NYSE:NWL) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Albemarle Corporation (NYSE:ALB) is even less popular than NWL. Hedge funds clearly dropped the ball on ALB as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on ALB as the stock returned 37.6% in the second quarter and outperformed the market by an even larger margin.

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