Do Hedge Funds Really Like Balchem Corporation (BCPC)?

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 Balchem Corporation (NASDAQ:BCPC) and determine whether the smart money was really smart about this stock.

Balchem Corporation (NASDAQ:BCPC) investors should be aware of an increase in support from the world’s most elite money managers of late. BCPC was in 13 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with BCPC holdings at the end of the previous quarter. Our calculations also showed that BCPC 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.

Ken Griffin

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the top 20 agriculture producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 analyze the key hedge fund action surrounding Balchem Corporation (NASDAQ:BCPC).

How are hedge funds trading Balchem Corporation (NASDAQ:BCPC)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BCPC over the last 18 quarters. 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 BCPC A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the largest position in Balchem Corporation (NASDAQ:BCPC). Renaissance Technologies has a $23.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Royce & Associates, led by Chuck Royce, holding a $23.4 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions contain Murray Stahl’s Horizon Asset Management, Ken Griffin’s Citadel Investment Group and Peter Muller’s PDT Partners. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Balchem Corporation (NASDAQ:BCPC), around 0.32% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.21 percent of its 13F equity portfolio to BCPC.

Consequently, some big names have been driving this bullishness. GLG Partners, managed by Noam Gottesman, established the biggest position in Balchem Corporation (NASDAQ:BCPC). GLG Partners had $0.6 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also initiated a $0.3 million position during the quarter. The other funds with brand new BCPC positions are Donald Sussman’s Paloma Partners, Matthew Hulsizer’s PEAK6 Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks similar to Balchem Corporation (NASDAQ:BCPC). We will take a look at Sibanye Stillwater Limited (NYSE:SBSW), Blueprint Medicines Corporation (NASDAQ:BPMC), Western Alliance Bancorporation (NYSE:WAL), and Darling Ingredients Inc. (NYSE:DAR). This group of stocks’ market values are closest to BCPC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBSW 19 83948 6
BPMC 36 762086 -1
WAL 27 137471 -5
DAR 25 255260 9
Average 26.75 309691 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $56 million in BCPC’s case. Blueprint Medicines Corporation (NASDAQ:BPMC) is the most popular stock in this table. On the other hand Sibanye Stillwater Limited (NYSE:SBSW) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Balchem Corporation (NASDAQ:BCPC) is even less popular than SBSW. Hedge funds dodged a bullet by taking a bearish stance towards BCPC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately BCPC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); BCPC investors were disappointed as the stock returned -7.6% during the second quarter (through June 25th) 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 so far in 2020.

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