Hedge Funds Are Buying Core Laboratories N.V. (CLB)

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 Core Laboratories N.V. (NYSE:CLB) based on that data and determine whether they were really smart about the stock.

Is Core Laboratories N.V. (NYSE:CLB) a safe stock to buy now? Hedge funds were getting more optimistic. The number of bullish hedge fund positions rose by 3 recently. Core Laboratories N.V. (NYSE:CLB) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. Our calculations also showed that CLB 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.

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 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 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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 check out the recent hedge fund action encompassing Core Laboratories N.V. (NYSE:CLB).

How are hedge funds trading Core Laboratories N.V. (NYSE:CLB)?

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in CLB a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Core Laboratories N.V. (NYSE:CLB) was held by Ariel Investments, which reported holding $42.4 million worth of stock at the end of September. It was followed by Ako Capital with a $27 million position. Other investors bullish on the company included Citadel Investment Group, Fisher Asset Management, and ExodusPoint Capital. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Core Laboratories N.V. (NYSE:CLB), around 0.93% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, dishing out 0.65 percent of its 13F equity portfolio to CLB.

Now, key money managers were breaking ground themselves. Ariel Investments, managed by John W. Rogers, established the largest position in Core Laboratories N.V. (NYSE:CLB). Ariel Investments had $42.4 million invested in the company at the end of the quarter. Nicolai Tangen’s Ako Capital also made a $27 million investment in the stock during the quarter. The other funds with brand new CLB positions are Michael Gelband’s ExodusPoint Capital, Matt Smith’s Deep Basin Capital, and Israel Englander’s Millennium Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Core Laboratories N.V. (NYSE:CLB) but similarly valued. We will take a look at Ultra Clean Holdings Inc (NASDAQ:UCTT), Colony Credit Real Estate, Inc. (NYSE:CLNC), Livent Corporation (NYSE:LTHM), Central European Media Enterprises Ltd. (NASDAQ:CETV), New Mountain Finance Corp. (NASDAQ:NMFC), AZZ Incorporated (NYSE:AZZ), and Virtus Investment Partners Inc (NASDAQ:VRTS). All of these stocks’ market caps are similar to CLB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UCTT 22 106493 -2
CLNC 6 36919 -5
LTHM 19 31900 4
CETV 12 42389 1
NMFC 10 20587 -3
AZZ 20 56535 3
VRTS 10 57944 -2
Average 14.1 50395 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $151 million in CLB’s case. Ultra Clean Holdings Inc (NASDAQ:UCTT) is the most popular stock in this table. On the other hand Colony Credit Real Estate, Inc. (NYSE:CLNC) is the least popular one with only 6 bullish hedge fund positions. Core Laboratories N.V. (NYSE:CLB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CLB is 71.4. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately CLB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CLB were disappointed as the stock returned -24.9% in Q3 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 many of these stocks already outperformed the market so far this year.

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