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Did Hedge Funds Make The Right Call On Scorpio Tankers Inc. (STNG)?

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 Scorpio Tankers Inc. (NYSE:STNG) and determine whether the smart money was really smart about this stock.

Is Scorpio Tankers Inc. (NYSE:STNG) the right investment to pursue these days? The best stock pickers were in a pessimistic mood. The number of bullish hedge fund positions shrunk by 8 lately. Our calculations also showed that STNG 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). STNG was in 25 hedge funds’ portfolios at the end of March. There were 33 hedge funds in our database with STNG holdings at the end of the previous quarter.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

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 glance at the new hedge fund action encompassing Scorpio Tankers Inc. (NYSE:STNG).

How have hedgies been trading Scorpio Tankers Inc. (NYSE:STNG)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in STNG a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STNG A Good Stock To Buy?

The largest stake in Scorpio Tankers Inc. (NYSE:STNG) was held by Hosking Partners, which reported holding $23.5 million worth of stock at the end of September. It was followed by Bayberry Capital Partners with a $16.5 million position. Other investors bullish on the company included Citadel Investment Group, Marshall Wace LLP, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Bayberry Capital Partners allocated the biggest weight to Scorpio Tankers Inc. (NYSE:STNG), around 6.73% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, designating 0.86 percent of its 13F equity portfolio to STNG.

Since Scorpio Tankers Inc. (NYSE:STNG) has faced declining sentiment from the smart money, we can see that there is a sect of fund managers that elected to cut their positions entirely last quarter. Interestingly, David Rosen’s Rubric Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $15.3 million in stock. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also sold off its stock, about $13.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 8 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Scorpio Tankers Inc. (NYSE:STNG). These stocks are Flagstar Bancorp Inc (NYSE:FBC), Covanta Holding Corporation (NYSE:CVA), Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), and Tri Continental Corporation (NYSE:TY). All of these stocks’ market caps match STNG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBC 15 66195 -5
CVA 25 55880 6
PPBI 8 30230 -4
TY 3 2165 1
Average 12.75 38618 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $88 million in STNG’s case. Covanta Holding Corporation (NYSE:CVA) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 3 bullish hedge fund positions. Scorpio Tankers Inc. (NYSE:STNG) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately STNG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on STNG were disappointed as the stock returned -32.6% 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.