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Hedge Funds Keep Buying Sensient Technologies Corporation (SXT)

In this article you are going to find out whether hedge funds think Sensient Technologies Corporation (NYSE:SXT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Sensient Technologies Corporation (NYSE:SXT) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that SXT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the new hedge fund action surrounding Sensient Technologies Corporation (NYSE:SXT).

How have hedgies been trading Sensient Technologies Corporation (NYSE:SXT)?

At Q1’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SXT over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is SXT A Good Stock To Buy?

The largest stake in Sensient Technologies Corporation (NYSE:SXT) was held by GAMCO Investors, which reported holding $22.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $13.1 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Sensient Technologies Corporation (NYSE:SXT), around 0.39% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.27 percent of its 13F equity portfolio to SXT.

As industrywide interest jumped, key hedge funds have jumped into Sensient Technologies Corporation (NYSE:SXT) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Sensient Technologies Corporation (NYSE:SXT). Arrowstreet Capital had $8.1 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $3.4 million position during the quarter. The other funds with brand new SXT positions are Minhua Zhang’s Weld Capital Management, Donald Sussman’s Paloma Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks similar to Sensient Technologies Corporation (NYSE:SXT). These stocks are Olin Corporation (NYSE:OLN), The Simply Good Foods Company (NASDAQ:SMPL), SVMK Inc. (NASDAQ:SVMK), and Greif, Inc. (NYSE:GEF). This group of stocks’ market caps resemble SXT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OLN 33 431603 0
SMPL 19 152168 -15
SVMK 29 211973 -2
GEF 17 64067 -1
Average 24.5 214953 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $83 million in SXT’s case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Greif, Inc. (NYSE:GEF) is the least popular one with only 17 bullish hedge fund positions. Sensient Technologies Corporation (NYSE:SXT) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on SXT, though not to the same extent, as the stock returned 24.3% during the second quarter and outperformed the market.

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