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Hedge Fund Sentiment Is Stalling On Darling Ingredients Inc. (DAR)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Darling Ingredients Inc. (NYSE:DAR) based on that data and determine whether they were really smart about the stock.

Darling Ingredients Inc. (NYSE:DAR) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds’ portfolios at the end of June. Our calculations also showed that DAR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 BOK Financial Corporation (NASDAQ:BOKF), Wyndham Hotels & Resorts, Inc. (NYSE:WH), and Huntsman Corporation (NYSE:HUN) to gather more data points. Our calculations also showed that DAR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Arnaud Ajdler Engine Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to analyze the key hedge fund action surrounding Darling Ingredients Inc. (NYSE:DAR).

How have hedgies been trading Darling Ingredients Inc. (NYSE:DAR)?

At second quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DAR over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Impax Asset Management, managed by Ian Simm, holds the biggest position in Darling Ingredients Inc. (NYSE:DAR). Impax Asset Management has a $144.3 million position in the stock, comprising 1.5% of its 13F portfolio. The second largest stake is held by ValueAct Capital, led by Jeffrey Ubben, holding a $65 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other peers that hold long positions consist of Ken Fisher’s Fisher Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Engine Capital allocated the biggest weight to Darling Ingredients Inc. (NYSE:DAR), around 7.96% of its 13F portfolio. Parsifal Capital Management is also relatively very bullish on the stock, setting aside 4.66 percent of its 13F equity portfolio to DAR.

Judging by the fact that Darling Ingredients Inc. (NYSE:DAR) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few fund managers that decided to sell off their full holdings heading into Q3. At the top of the heap, George Baxter’s Sabrepoint Capital dropped the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $2.9 million in stock, and Adam Usdan’s Trellus Management Company was right behind this move, as the fund dropped about $2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Darling Ingredients Inc. (NYSE:DAR) but similarly valued. These stocks are BOK Financial Corporation (NASDAQ:BOKF), Wyndham Hotels & Resorts, Inc. (NYSE:WH), Huntsman Corporation (NYSE:HUN), Qurate Retail, Inc. (NASDAQ:QRTEA), BridgeBio Pharma, Inc. (NASDAQ:BBIO), Healthcare Realty Trust Inc (NYSE:HR), and JBG SMITH Properties (NYSE:JBGS). All of these stocks’ market caps resemble DAR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOKF 17 203603 -5
WH 36 760057 5
HUN 25 354992 4
QRTEA 43 743396 11
BBIO 14 1341110 2
HR 22 155771 11
JBGS 25 283097 5
Average 26 548861 4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $549 million. That figure was $404 million in DAR’s case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand BridgeBio Pharma, Inc. (NASDAQ:BBIO) is the least popular one with only 14 bullish hedge fund positions. Darling Ingredients Inc. (NYSE:DAR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DAR is 48.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on DAR as the stock returned 35.5% since the end of June (through September 25th) and outperformed the market by an even larger margin.

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