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Imperial Oil Limited (IMO): Are Hedge Funds Right About This Stock?

We can judge whether Imperial Oil Limited (NYSE:IMO) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Imperial Oil Limited (NYSE:IMO) a healthy stock for your portfolio? The best stock pickers are getting more bullish. The number of bullish hedge fund bets improved by 2 recently. Our calculations also showed that IMO isn’t among the 30 most popular stocks among hedge funds.

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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

BRIDGEWATER ASSOCIATES

Let’s take a glance at the new hedge fund action surrounding Imperial Oil Limited (NYSE:IMO).

What does the smart money think about Imperial Oil Limited (NYSE:IMO)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IMO over the last 13 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

IMO_dec2018

Among these funds, Point72 Asset Management held the most valuable stake in Imperial Oil Limited (NYSE:IMO), which was worth $46.5 million at the end of the third quarter. On the second spot was D E Shaw which amassed $31 million worth of shares. Moreover, AQR Capital Management, GLG Partners, and Bridgewater Associates were also bullish on Imperial Oil Limited (NYSE:IMO), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, key money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the largest position in Imperial Oil Limited (NYSE:IMO). Two Sigma Advisors had $5 million invested in the company at the end of the quarter. George Zweig, Shane Haas and Ravi Chander’s Signition LP also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Jim Simons’s Renaissance Technologies, Ken Griffin’s Citadel Investment Group, and Andrew Weiss’s Weiss Asset Management.

Let’s also examine hedge fund activity in other stocks similar to Imperial Oil Limited (NYSE:IMO). These stocks are Continental Resources, Inc. (NYSE:CLR), General Mills, Inc. (NYSE:GIS), Ingersoll-Rand Plc (NYSE:IR), and AvalonBay Communities Inc (NYSE:AVB). This group of stocks’ market valuations are similar to IMO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLR 29 609433 -4
GIS 32 289635 0
IR 42 2099674 9
AVB 26 970758 1
Average 32.25 992375 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $992 million. That figure was $111 million in IMO’s case. Ingersoll-Rand Plc (NYSE:IR) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Imperial Oil Limited (NYSE:IMO) is even less popular than AVB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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

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