We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Sensient Technologies Corporation (NYSE:SXT).
Sensient Technologies Corporation (NYSE:SXT) was in 20 hedge funds’ portfolios at the end of December. SXT has experienced an increase in hedge fund sentiment recently. There were 17 hedge funds in our database with SXT positions at the end of the previous quarter. Our calculations also showed that SXT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action surrounding Sensient Technologies Corporation (NYSE:SXT).
What does smart money think about Sensient Technologies Corporation (NYSE:SXT)?
Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SXT over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Mario Gabelli’s GAMCO Investors has the number one position in Sensient Technologies Corporation (NYSE:SXT), worth close to $34.9 million, accounting for 0.3% of its total 13F portfolio. The second most bullish fund manager is Winton Capital Management, managed by David Harding, which holds a $3.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions contain Ken Griffin’s Citadel Investment Group, Brandon Haley’s Holocene Advisors and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Sensient Technologies Corporation (NYSE:SXT), around 0.28% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to SXT.
Now, key hedge funds were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most valuable position in Sensient Technologies Corporation (NYSE:SXT). Two Sigma Advisors had $1.8 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $1.7 million position during the quarter. The following funds were also among the new SXT investors: Dmitry Balyasny’s Balyasny Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Peter Muller’s PDT Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sensient Technologies Corporation (NYSE:SXT) but similarly valued. These stocks are Piedmont Office Realty Trust, Inc. (NYSE:PDM), EQT Corporation (NYSE:EQT), Emergent Biosolutions Inc (NYSE:EBS), and Brandywine Realty Trust (NYSE:BDN). This group of stocks’ market caps are closest to SXT’s market cap.
|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 $172 million. That figure was $57 million in SXT’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Piedmont Office Realty Trust, Inc. (NYSE:PDM) is the least popular one with only 11 bullish hedge fund positions. Sensient Technologies Corporation (NYSE:SXT) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SXT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SXT were disappointed as the stock returned -36.2% during the same time 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.