Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Dorian LPG Ltd (NYSE:LPG).
Is LPG a good stock to buy now? Dorian LPG Ltd (NYSE:LPG) was in 14 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. LPG shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 15 hedge funds in our database with LPG holdings at the end of June. Our calculations also showed that LPG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a look at the new hedge fund action surrounding Dorian LPG Ltd (NYSE:LPG).
Do Hedge Funds Think LPG Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the second quarter of 2020. On the other hand, there were a total of 20 hedge funds with a bullish position in LPG a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Kensico Capital was the largest shareholder of Dorian LPG Ltd (NYSE:LPG), with a stake worth $64.2 million reported as of the end of September. Trailing Kensico Capital was Royce & Associates, which amassed a stake valued at $12.8 million. Arrowstreet Capital, GLG Partners, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kensico Capital allocated the biggest weight to Dorian LPG Ltd (NYSE:LPG), around 1.4% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, setting aside 0.6 percent of its 13F equity portfolio to LPG.
Because Dorian LPG Ltd (NYSE:LPG) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few funds that slashed their positions entirely by the end of the third quarter. Intriguingly, David Harding’s Winton Capital Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $2 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund sold off about $0.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dorian LPG Ltd (NYSE:LPG) but similarly valued. These stocks are International Seaways, Inc. (NYSE:INSW), China Online Education Group (NYSE:COE), CBTX, Inc. (NASDAQ:CBTX), Amryt Pharma plc (NASDAQ:AMYT), REX American Resources Corp (NYSE:REX), Laird Superfood, Inc. (NYSE:LSF), and Diamond Hill Investment Group, Inc. (NASDAQ:DHIL). All of these stocks’ market caps are similar to LPG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $88 million in LPG’s case. International Seaways, Inc. (NYSE:INSW) is the most popular stock in this table. On the other hand China Online Education Group (NYSE:COE) is the least popular one with only 4 bullish hedge fund positions. Dorian LPG Ltd (NYSE:LPG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LPG is 68.5. 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. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on LPG as the stock returned 45.6% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.