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Did Hedge Funds Make The Right Call On PBF Energy Inc (PBF) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PBF Energy Inc (NYSE:PBF) and determine whether hedge funds skillfully traded this stock.

PBF Energy Inc (NYSE:PBF) was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. PBF investors should be aware of a decrease in support from the world’s most elite money managers recently. There were 32 hedge funds in our database with PBF holdings at the end of the previous quarter. Our calculations also showed that PBF 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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. With all of this in mind we’re going to check out the new hedge fund action encompassing PBF Energy Inc (NYSE:PBF).

How are hedge funds trading PBF Energy Inc (NYSE:PBF)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PBF over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, D E Shaw was the largest shareholder of PBF Energy Inc (NYSE:PBF), with a stake worth $19.4 million reported as of the end of September. Trailing D E Shaw was Millennium Management, which amassed a stake valued at $11.8 million. AQR Capital Management, Masters Capital Management, and Arrowstreet Capital 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 Solas Capital Management allocated the biggest weight to PBF Energy Inc (NYSE:PBF), around 1.24% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, setting aside 0.84 percent of its 13F equity portfolio to PBF.

Judging by the fact that PBF Energy Inc (NYSE:PBF) has experienced declining sentiment from hedge fund managers, logic holds that there were a few money managers that slashed their positions entirely by the end of the first quarter. Intriguingly, Steve Cohen’s Point72 Asset Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $17.3 million in stock, and Jonathan Barrett and Paul Segal’s Luminus Management was right behind this move, as the fund cut about $6.5 million worth. These moves are important to note, as total hedge fund interest fell by 10 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to PBF Energy Inc (NYSE:PBF). We will take a look at DCP Midstream LP (NYSE:DCP), Cango Inc. (NYSE:CANG), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), and Sunnova Energy International Inc. (NYSE:NOVA). All of these stocks’ market caps match PBF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DCP 4 7421 -2
CANG 1 212 0
FLWS 19 60482 4
NOVA 9 49870 0
Average 8.25 29496 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $71 million in PBF’s case. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) is the most popular stock in this table. On the other hand Cango Inc. (NYSE:CANG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks PBF Energy Inc (NYSE:PBF) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on PBF as the stock returned 44.6% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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