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Did Hedge Funds Make The Right Call On International Paper Company (IP) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded International Paper Company (NYSE:IP) and determine whether the smart money was really smart about this stock.

Is International Paper Company (NYSE:IP) a bargain? Hedge funds were becoming hopeful. The number of long hedge fund bets rose by 4 in recent months. Our calculations also showed that IP 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). IP was in 29 hedge funds’ portfolios at the end of the first quarter of 2020. There were 25 hedge funds in our database with IP holdings at the end of the previous quarter.

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

In today’s marketplace there are tons of gauges stock market investors have at their disposal to grade their holdings. A couple of the most underrated gauges are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the elite money managers can outperform the S&P 500 by a significant margin (see the details here).

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the recent hedge fund action regarding International Paper Company (NYSE:IP).

Hedge fund activity in International Paper Company (NYSE:IP)

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in IP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is IP A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of International Paper Company (NYSE:IP), with a stake worth $88 million reported as of the end of September. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $33.8 million. Levin Easterly Partners, Balyasny Asset Management, and Citadel Investment Group 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 Levin Easterly Partners allocated the biggest weight to International Paper Company (NYSE:IP), around 1.2% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, earmarking 0.61 percent of its 13F equity portfolio to IP.

Now, key hedge funds have been driving this bullishness. Levin Easterly Partners, managed by John Murphy, created the largest position in International Paper Company (NYSE:IP). Levin Easterly Partners had $27.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $15.9 million investment in the stock during the quarter. The other funds with brand new IP positions are  Renaissance Technologies, Benjamin A. Smith’s Laurion Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s check out hedge fund activity in other stocks similar to International Paper Company (NYSE:IP). These stocks are Atmos Energy Corporation (NYSE:ATO), Dover Corporation (NYSE:DOV), Healthpeak Properties, Inc. (NYSE:PEAK), and Restaurant Brands International Inc (NYSE:QSR). This group of stocks’ market caps are similar to IP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATO 21 208767 -5
DOV 31 644941 2
PEAK 26 292181 0
QSR 41 2250209 -11
Average 29.75 849025 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $849 million. That figure was $242 million in IP’s case. Restaurant Brands International Inc (NYSE:QSR) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 21 bullish hedge fund positions. International Paper Company (NYSE:IP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately IP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IP investors were disappointed as the stock returned 14.9% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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