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Halliburton Company (HAL): Are Hedge Funds Right About This Stock?

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Is Halliburton Company (NYSE:HAL) the right investment to pursue these days? Hedge funds are becoming less confident. The number of long hedge fund bets decreased by 10 recently. HAL was in 59 hedge funds’ portfolios at the end of the third quarter of 2015. There were 69 hedge funds in our database with HAL positions at the end of the previous quarter. At the end of this article we will also compare HAL to other stocks, including Illinois Tool Works Inc. (NYSE:ITW), Liberty Global PLC LiLAC Class C (NASDAQ:LILAK), and Valero Energy Corporation (NYSE:VLO) to get a better sense of its popularity.

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To the average investor there are plenty of tools investors employ to assess their stock investments. Some of the most underrated tools are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite money managers can outperform the market by a superb margin (see the details here).

Now, we’re going to take a peek at the new action encompassing Halliburton Company (NYSE:HAL).

What does the smart money think about Halliburton Company (NYSE:HAL)?

At the end of the third quarter, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decrease of 14% from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Ubben’s ValueAct Capital has the most valuable position in Halliburton Company (NYSE:HAL), worth close to $1.31 billion, corresponding to 7.6% of its total 13F portfolio. On ValueAct Capital’s heels is OZ Management, managed by Daniel S. Och, which holds a $498.3 million call position; 1.7% of its 13F portfolio is allocated to HAL. Remaining peers that hold long positions comprise Glenn Greenberg’s Brave Warrior Capital, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group.

Judging by the fact that Halliburton Company (NYSE:HAL) has witnessed declining sentiment from the smart money, it’s easy to see that there is a sect of money managers that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Stanley Druckenmiller’s Duquesne Capital dropped the largest position of the 700 funds watched by Insider Monkey, totaling an estimated $66.6 million in stock, and Christopher James’s Partner Fund Management was right behind this move, as the fund sold off about $46.7 million worth of shares. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 10 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Halliburton Company (NYSE:HAL) but similarly valued. These stocks are Illinois Tool Works Inc. (NYSE:ITW), Liberty Global PLC LiLAC Class C (NASDAQ:LILAK), Valero Energy Corporation (NYSE:VLO), and eBay Inc (NASDAQ:EBAY). This group of stocks’ market values resemble HAL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ITW 31 934514 -7
LILAK 40 406793 40
VLO 56 1842981 8
EBAY 83 3681749 -16

As you can see these stocks had an average of 53 hedge funds with bullish positions and the average amount invested in these stocks was $1.72 billion. That figure was $3.77 billion in HAL’s case. eBay Inc (NASDAQ:EBAY) is the most popular stock in this table, whereas Illinois Tool Works Inc. (NYSE:ITW) is the least popular one with only 31 bullish hedge fund positions. Halliburton Company (NYSE:HAL) 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. In this regard EBAY might be a better candidate to consider a long position.

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