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Did Hedge Funds Make The Right Call On Greif, Inc. (GEF) ?

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 Greif, Inc. (NYSE:GEF) and determine whether hedge funds had an edge regarding this stock.

Greif, Inc. (NYSE:GEF) has experienced a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that GEF 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Mario Gabelli of GAMCO Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a peek at the recent hedge fund action encompassing Greif, Inc. (NYSE:GEF).

How are hedge funds trading Greif, Inc. (NYSE:GEF)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in GEF over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Greif, Inc. (NYSE:GEF) was held by GAMCO Investors, which reported holding $24.3 million worth of stock at the end of September. It was followed by Arbiter Partners Capital Management with a $11.6 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Arbiter Partners Capital Management allocated the biggest weight to Greif, Inc. (NYSE:GEF), around 1.72% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to GEF.

Due to the fact that Greif, Inc. (NYSE:GEF) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few hedgies that elected to cut their positions entirely heading into Q4. Intriguingly, Israel Englander’s Millennium Management dropped the largest stake of the 750 funds monitored by Insider Monkey, worth close to $0.8 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund said goodbye to about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Greif, Inc. (NYSE:GEF). We will take a look at Prestige Consumer Healthcare Inc. (NYSE:PBH), Denali Therapeutics Inc. (NASDAQ:DNLI), Cathay General Bancorp (NASDAQ:CATY), and AllianceBernstein Holding LP (NYSE:AB). This group of stocks’ market values are similar to GEF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBH 17 86125 3
DNLI 14 70980 5
CATY 15 21855 1
AB 7 19810 -4
Average 13.25 49693 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $64 million in GEF’s case. Prestige Consumer Healthcare Inc. (NYSE:PBH) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 7 bullish hedge fund positions. Greif, Inc. (NYSE:GEF) 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately GEF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GEF were disappointed as the stock returned 22.8% 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.

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