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Do Hedge Funds Love Albemarle Corporation (ALB)?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Albemarle Corporation (NYSE:ALB) changed recently.

Is Albemarle Corporation (NYSE:ALB) a healthy stock for your portfolio? Prominent investors are becoming less hopeful. The number of bullish hedge fund positions shrunk by 5 lately. Our calculations also showed that ALB isn’t among the 30 most popular stocks among hedge funds. ALB was in 22 hedge funds’ portfolios at the end of the third quarter of 2018. There were 27 hedge funds in our database with ALB positions at the end of the previous quarter.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Let’s review the recent hedge fund action surrounding Albemarle Corporation (NYSE:ALB).

What have hedge funds been doing with Albemarle Corporation (NYSE:ALB)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in ALB heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

ALB_dec2018

Among these funds, Iridian Asset Management held the most valuable stake in Albemarle Corporation (NYSE:ALB), which was worth $193.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $43.7 million worth of shares. Moreover, Glenview Capital, Anchor Bolt Capital, and Element Capital Management were also bullish on Albemarle Corporation (NYSE:ALB), allocating a large percentage of their portfolios to this stock.

Due to the fact that Albemarle Corporation (NYSE:ALB) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedgies who were dropping their entire stakes last quarter. Intriguingly, Jim Simons’s Renaissance Technologies sold off the largest investment of the 700 funds monitored by Insider Monkey, comprising close to $47.8 million in stock, and Mike Masters’s Masters Capital Management was right behind this move, as the fund sold off about $18.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 5 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Albemarle Corporation (NYSE:ALB). These stocks are Fidelity National Financial Inc (NYSE:FNF), UDR, Inc. (NYSE:UDR), Dropbox, Inc. (NASDAQ:DBX), and Yandex NV (NASDAQ:YNDX). This group of stocks’ market values are closest to ALB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FNF 29 491965 3
UDR 16 446632 -1
DBX 27 461569 0
YNDX 37 984529 -1
Average 27.25 596174 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $596 million. That figure was $354 million in ALB’s case. Yandex NV (NASDAQ:YNDX) is the most popular stock in this table. On the other hand UDR, Inc. (NYSE:UDR) is the least popular one with only 16 bullish hedge fund positions. Albemarle Corporation (NYSE:ALB) 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. In this regard YNDX might be a better candidate to consider a long position.

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

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