We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Vertex Energy Inc (NASDAQ:VTNR).
Vertex Energy Inc (NASDAQ:VTNR) has experienced an increase in hedge fund interest of late. VTNR was in 6 hedge funds’ portfolios at the end of September. There were 5 hedge funds in our database with VTNR holdings at the end of the previous quarter. Our calculations also showed that VTNR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Philip Hempleman of Ardsley Partners
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to check out the key hedge fund action surrounding Vertex Energy Inc (NASDAQ:VTNR).
How are hedge funds trading Vertex Energy Inc (NASDAQ:VTNR)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in VTNR over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Manatuck Hill Partners, managed by Mark Broach, holds the biggest position in Vertex Energy Inc (NASDAQ:VTNR). Manatuck Hill Partners has a $2.2 million position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by Douglas Dossey and Arthur Young of Tensile Capital, with a $1.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Adam Usdan’s Trellus Management Company, Philip Hempleman’s Ardsley Partners and Phil Frohlich’s Prescott Group Capital Management. In terms of the portfolio weights assigned to each position Manatuck Hill Partners allocated the biggest weight to Vertex Energy Inc (NASDAQ:VTNR), around 1.22% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, designating 0.95 percent of its 13F equity portfolio to VTNR.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Tensile Capital, managed by Douglas Dossey and Arthur Young, initiated the most valuable position in Vertex Energy Inc (NASDAQ:VTNR). Tensile Capital had $1.7 million invested in the company at the end of the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Vertex Energy Inc (NASDAQ:VTNR) but similarly valued. We will take a look at Perceptron, Inc. (NASDAQ:PRCP), Town Sports International Holdings, Inc. (NASDAQ:CLUB), LSC Communications, Inc. (NYSE:LKSD), and Friedman Industries, Incorporated (NYSE:FRD). This group of stocks’ market caps match VTNR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRCP | 6 | 15601 | 0 |
| CLUB | 9 | 22210 | -1 |
| LKSD | 10 | 6738 | 1 |
| FRD | 1 | 3206 | 0 |
| Average | 6.5 | 11939 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $6 million in VTNR’s case. LSC Communications, Inc. (NYSE:LKSD) is the most popular stock in this table. On the other hand Friedman Industries, Incorporated (NYSE:FRD) is the least popular one with only 1 bullish hedge fund positions. Vertex Energy Inc (NASDAQ:VTNR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on VTNR as the stock returned 43% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
