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Did Hedge Funds Make The Right Call On NewMarket Corporation (NEU)?

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

Is NewMarket Corporation (NYSE:NEU) ready to rally soon? Hedge funds were selling. The number of long hedge fund bets were trimmed by 2 lately. Our calculations also showed that NEU 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 the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to view the recent hedge fund action surrounding NewMarket Corporation (NYSE:NEU).

How have hedgies been trading NewMarket Corporation (NYSE:NEU)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NEU over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NEU A Good Stock To Buy?

The largest stake in NewMarket Corporation (NYSE:NEU) was held by AQR Capital Management, which reported holding $68.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $34.7 million position. Other investors bullish on the company included Citadel Investment Group, GAMCO Investors, and Winton Capital Management. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to NewMarket Corporation (NYSE:NEU), around 0.25% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to NEU.

Due to the fact that NewMarket Corporation (NYSE:NEU) has faced falling interest from the aggregate hedge fund industry, we can see that there were a few hedgies that decided to sell off their entire stakes by the end of the first quarter. Intriguingly, Israel Englander’s Millennium Management dumped the biggest investment of all the hedgies monitored by Insider Monkey, valued at about $7.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $5.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NewMarket Corporation (NYSE:NEU) but similarly valued. These stocks are TFS Financial Corporation (NASDAQ:TFSL), Globus Medical Inc (NYSE:GMED), Legg Mason, Inc. (NYSE:LM), and Flex Ltd. (NASDAQ:FLEX). This group of stocks’ market values match NEU’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TFSL 9 134718 -2
GMED 19 166330 -10
LM 38 944444 1
FLEX 24 801436 -10
Average 22.5 511732 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $143 million in NEU’s case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. NewMarket Corporation (NYSE:NEU) 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately NEU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NEU investors were disappointed as the stock returned 10.8% since Q1 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.