Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Huntsman Corporation (NYSE:HUN) changed recently.
Huntsman Corporation (NYSE:HUN) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 31 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Masimo Corporation (NASDAQ:MASI), Crown Holdings, Inc. (NYSE:CCK), and American Homes 4 Rent (NYSE:AMH) to gather more data points.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s go over the key hedge fund action encompassing Huntsman Corporation (NYSE:HUN).
What does the smart money think about Huntsman Corporation (NYSE:HUN)?
Heading into the fourth quarter of 2018, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2018. On the other hand, there were a total of 47 hedge funds with a bullish position in HUN at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Huntsman Corporation (NYSE:HUN) was held by Iridian Asset Management, which reported holding $197.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $172.9 million position. Other investors bullish on the company included Atlantic Investment Management, Two Sigma Advisors, and Millennium Management.
Since Huntsman Corporation (NYSE:HUN) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds that elected to cut their positions entirely last quarter. It’s worth mentioning that Vince Maddi and Shawn Brennan’s SIR Capital Management sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, valued at about $9.6 million in stock. Bart Baum’s fund, Ionic Capital Management, also dumped its stock, about $6.5 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Huntsman Corporation (NYSE:HUN) but similarly valued. These stocks are Masimo Corporation (NASDAQ:MASI), Crown Holdings, Inc. (NYSE:CCK), American Homes 4 Rent (NYSE:AMH), and Columbia Sportswear Company (NASDAQ:COLM). This group of stocks’ market valuations are similar to HUN’s market valuation.
|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 26 hedge funds with bullish positions and the average amount invested in these stocks was $543 million. That figure was $824 million in HUN’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand American Homes 4 Rent (NYSE:AMH) is the least popular one with only 20 bullish hedge fund positions. Huntsman Corporation (NYSE:HUN) 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.
In the October issue of our monthly newsletter we took a detailed look into Huntsman and decided not to recommend a position in the stock as well. Alex Roepers pitched this stock at an investment conference a few months ago, but stock picks performed terribly in recent years. That’s one of the reasons why we didn’t swing at this pitch. There just are better stocks to invest in
Disclosure: None. This article was originally published at Insider Monkey.