Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Darling Ingredients Inc. (NYSE:DAR) a splendid investment today? The best stock pickers are taking a pessimistic view. The number of long hedge fund bets retreated by 3 in recent months. Our calculations also showed that DAR isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the latest hedge fund action regarding Darling Ingredients Inc. (NYSE:DAR).
How have hedgies been trading Darling Ingredients Inc. (NYSE:DAR)?
At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DAR over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in Darling Ingredients Inc. (NYSE:DAR), which was worth $46.1 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $39.9 million worth of shares. Moreover, ValueAct Capital, Millennium Management, and Point72 Asset Management were also bullish on Darling Ingredients Inc. (NYSE:DAR), allocating a large percentage of their portfolios to this stock.
Since Darling Ingredients Inc. (NYSE:DAR) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers who sold off their full holdings last quarter. Intriguingly, Thomas E. Claugus’s GMT Capital said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $9.2 million in call options, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $5.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Darling Ingredients Inc. (NYSE:DAR). These stocks are Moog Inc (NYSE:MOG), BankUnited, Inc. (NYSE:BKU), Cantel Medical Corp. (NYSE:CMD), and LiveRamp Holdings, Inc. (NYSE:RAMP). This group of stocks’ market valuations are closest to DAR’s market valuation.
|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 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $264 million. That figure was $193 million in DAR’s case. LiveRamp Holdings, Inc. (NYSE:RAMP) is the most popular stock in this table. On the other hand Cantel Medical Corp. (NYSE:CMD) is the least popular one with only 11 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. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DAR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DAR investors were disappointed as the stock returned -3.8% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.