In this article we will take a look at whether hedge funds think Darling Ingredients Inc. (NYSE:DAR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Darling Ingredients Inc. (NYSE:DAR) investors should be aware of an increase in hedge fund interest recently. DAR was in 25 hedge funds’ portfolios at the end of March. There were 16 hedge funds in our database with DAR positions at the end of the previous quarter. Our calculations also showed that DAR 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.
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 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 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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the new hedge fund action encompassing Darling Ingredients Inc. (NYSE:DAR).
How have hedgies been trading Darling Ingredients Inc. (NYSE:DAR)?
Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 56% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in DAR over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ian Simm’s Impax Asset Management has the most valuable position in Darling Ingredients Inc. (NYSE:DAR), worth close to $97.1 million, accounting for 1.3% of its total 13F portfolio. Sitting at the No. 2 spot is ValueAct Capital, led by Jeffrey Ubben, holding a $50.6 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining peers that hold long positions comprise Ken Fisher’s Fisher Asset Management, Alex Snow’s Lansdowne Partners and Renaissance Technologies. In terms of the portfolio weights assigned to each position Trellus Management Company allocated the biggest weight to Darling Ingredients Inc. (NYSE:DAR), around 3.61% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, setting aside 1.29 percent of its 13F equity portfolio to DAR.
Now, key hedge funds were leading the bulls’ herd. Lansdowne Partners, managed by Alex Snow, established the largest position in Darling Ingredients Inc. (NYSE:DAR). Lansdowne Partners had $15.6 million invested in the company at the end of the quarter. Renaissance Technologies also made a $9.3 million investment in the stock during the quarter. The following funds were also among the new DAR investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Gelband’s ExodusPoint Capital, and Ken Griffin’s Citadel Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Darling Ingredients Inc. (NYSE:DAR) but similarly valued. We will take a look at Glacier Bancorp, Inc. (NASDAQ:GBCI), ALLETE Inc (NYSE:ALE), Flowserve Corporation (NYSE:FLS), and MorphoSys AG (NASDAQ:MOR). This group of stocks’ market values match DAR’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $255 million in DAR’s case. Flowserve Corporation (NYSE:FLS) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 5 bullish hedge fund positions. Darling Ingredients Inc. (NYSE:DAR) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on DAR, though not to the same extent, as the stock returned 26.9% during the first two months and ten days of the second quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.