Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Valero Energy Corporation (NYSE:VLO) and compare its performance to hedge funds’ consensus picks in 2019.
Valero Energy Corporation (NYSE:VLO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 35 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ecopetrol S.A. (NYSE:EC), Johnson Controls International plc (NYSE:JCI), and Eaton Corporation plc (NYSE:ETN) to gather more data points. Our calculations also showed that VLO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
At the moment there are a lot of gauges shareholders use to value their holdings. Two of the most under-the-radar gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the top money managers can outclass the market by a significant amount (see the details here).
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a peek at the latest hedge fund action encompassing Valero Energy Corporation (NYSE:VLO).
How are hedge funds trading Valero Energy Corporation (NYSE:VLO)?
At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VLO over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Valero Energy Corporation (NYSE:VLO) was held by AQR Capital Management, which reported holding $103.1 million worth of stock at the end of September. It was followed by D E Shaw with a $95.2 million position. Other investors bullish on the company included Millennium Management, Adage Capital Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position GeoSphere Capital Management allocated the biggest weight to Valero Energy Corporation (NYSE:VLO), around 3.59% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, setting aside 2.74 percent of its 13F equity portfolio to VLO.
Due to the fact that Valero Energy Corporation (NYSE:VLO) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds that elected to cut their entire stakes heading into Q4. It’s worth mentioning that David Rosen’s Rubric Capital Management said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, valued at about $27.3 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stock, about $25.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Valero Energy Corporation (NYSE:VLO) but similarly valued. These stocks are Ecopetrol S.A. (NYSE:EC), Johnson Controls International plc (NYSE:JCI), Eaton Corporation plc (NYSE:ETN), and Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA). This group of stocks’ market caps are similar to VLO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EC | 10 | 174854 | 0 |
| JCI | 22 | 598575 | 4 |
| ETN | 31 | 463777 | -5 |
| BBVA | 9 | 275548 | 2 |
| Average | 18 | 378189 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $378 million. That figure was $530 million in VLO’s case. Eaton Corporation plc (NYSE:ETN) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Valero Energy Corporation (NYSE:VLO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on VLO, though not to the same extent, as the stock returned 32.5% during the same period and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
