How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Celanese Corporation (NYSE:CE) and determine whether hedge funds had an edge regarding this stock.
Is Celanese Corporation (NYSE:CE) undervalued? Hedge funds were taking an optimistic view. The number of long hedge fund positions rose by 4 recently. Celanese Corporation (NYSE:CE) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CE 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 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to take a glance at the fresh hedge fund action surrounding Celanese Corporation (NYSE:CE).
How have hedgies been trading Celanese Corporation (NYSE:CE)?
At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the first quarter of 2020. On the other hand, there were a total of 20 hedge funds with a bullish position in CE a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Lyrical Asset Management held the most valuable stake in Celanese Corporation (NYSE:CE), which was worth $237.1 million at the end of the third quarter. On the second spot was GMT Capital which amassed $197.6 million worth of shares. Holocene Advisors, Millennium Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position GMT Capital allocated the biggest weight to Celanese Corporation (NYSE:CE), around 11.12% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, setting aside 4.67 percent of its 13F equity portfolio to CE.
Consequently, key money managers have jumped into Celanese Corporation (NYSE:CE) headfirst. Holocene Advisors, managed by Brandon Haley, created the most valuable position in Celanese Corporation (NYSE:CE). Holocene Advisors had $80.5 million invested in the company at the end of the quarter. Michael Cowley’s Sandbar Asset Management also initiated a $5.2 million position during the quarter. The following funds were also among the new CE investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Michael Gelband’s ExodusPoint Capital, and Greg Poole’s Echo Street Capital Management.
Let’s check out hedge fund activity in other stocks similar to Celanese Corporation (NYSE:CE). We will take a look at Discovery Inc. (NASDAQ:DISCA), Concho Resources Inc. (NYSE:CXO), Lyft, Inc. (NASDAQ:LYFT), Zendesk Inc (NYSE:ZEN), Bio-Techne Corporation (NASDAQ:TECH), United Airlines Holdings Inc (NASDAQ:UAL), and Erie Indemnity Company (NASDAQ:ERIE). This group of stocks’ market values are closest to CE’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 35 hedge funds with bullish positions and the average amount invested in these stocks was $626 million. That figure was $695 million in CE’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 14 bullish hedge fund positions. Celanese Corporation (NYSE:CE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CE is 58.4. 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. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on CE, though not to the same extent, as the stock returned 17.9% during the first two months of Q3 and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.