“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Stewart Information Services Corp (NYSE:STC) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Is Stewart Information Services Corp (NYSE:STC) undervalued? Hedge funds are becoming more confident. The number of long hedge fund bets moved up by 3 lately. Our calculations also showed that stc isn’t among the 30 most popular stocks among hedge funds.
In the eyes of most investors, hedge funds are perceived as unimportant, old financial vehicles of the past. While there are more than 8000 funds trading at the moment, Our researchers choose to focus on the aristocrats of this group, approximately 750 funds. These investment experts watch over bulk of the smart money’s total capital, and by shadowing their best stock picks, Insider Monkey has unsheathed numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Let’s review the key hedge fund action encompassing Stewart Information Services Corp (NYSE:STC).
Hedge fund activity in Stewart Information Services Corp (NYSE:STC)
Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STC over the last 15 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Magnetar Capital was the largest shareholder of Stewart Information Services Corp (NYSE:STC), with a stake worth $42.1 million reported as of the end of March. Trailing Magnetar Capital was Renaissance Technologies, which amassed a stake valued at $36.6 million. Paulson & Co, Springbok Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key hedge funds were breaking ground themselves. D E Shaw, managed by D. E. Shaw, assembled the most valuable position in Stewart Information Services Corp (NYSE:STC). D E Shaw had $0.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Stewart Information Services Corp (NYSE:STC) but similarly valued. These stocks are Goosehead Insurance, Inc. (NASDAQ:GSHD), Harmony Gold Mining Company Limited (NYSE:HMY), Central European Media Enterprises Ltd. (NASDAQ:CETV), and Enphase Energy Inc (NASDAQ:ENPH). This group of stocks’ market values resemble STC’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 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $140 million in STC’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 4 bullish hedge fund positions. Stewart Information Services Corp (NYSE:STC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately STC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STC were disappointed as the stock returned -2.7% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.