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Hedge Funds Have Never Been This Bullish On Valvoline Inc. (VVV)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Valvoline Inc. (NYSE:VVV) based on that data and determine whether they were really smart about the stock.

Valvoline Inc. (NYSE:VVV) investors should be aware of an increase in support from the world’s most elite money managers in recent months. Valvoline Inc. (NYSE:VVV) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 39 hedge funds in our database with VVV holdings at the end of March. Our calculations also showed that VVV 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 peek at the key hedge fund action surrounding Valvoline Inc. (NYSE:VVV).

Hedge fund activity in Valvoline Inc. (NYSE:VVV)

At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in VVV a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is VVV A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Parag Vora’s HG Vora Capital Management has the biggest position in Valvoline Inc. (NYSE:VVV), worth close to $106.3 million, accounting for 9.6% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $84.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass Ricky Sandler’s Eminence Capital, Douglas Dossey and Arthur Young’s Tensile Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Valvoline Inc. (NYSE:VVV), around 9.56% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, earmarking 9.2 percent of its 13F equity portfolio to VVV.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Eminence Capital, managed by Ricky Sandler, initiated the most outsized position in Valvoline Inc. (NYSE:VVV). Eminence Capital had $68.5 million invested in the company at the end of the quarter. John Brennan’s Sirios Capital Management also initiated a $16.2 million position during the quarter. The following funds were also among the new VVV investors: Steven Tananbaum’s GoldenTree Asset Management, Ira Unschuld’s Brant Point Investment Management, and Craig Peskin and Peter Fleiss’s Solel Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Valvoline Inc. (NYSE:VVV) but similarly valued. These stocks are WPX Energy Inc (NYSE:WPX), Terreno Realty Corporation (NYSE:TRNO), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Medallia, Inc. (NYSE:MDLA), Black Hills Corporation (NYSE:BKH), Braskem SA (NYSE:BAK), and Physicians Realty Trust (NYSE:DOC). All of these stocks’ market caps match VVV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPX 37 230770 8
TRNO 9 29693 -1
ARNA 41 814569 5
MDLA 18 257841 -2
BKH 22 182307 4
BAK 7 36296 1
DOC 15 106429 -1
Average 21.3 236844 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $634 million in VVV’s case. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 7 bullish hedge fund positions. Valvoline Inc. (NYSE:VVV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VVV is 84.5. 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. 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 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. Unfortunately VVV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VVV were disappointed as the stock returned 6.1% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.