Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Schlumberger Limited. (NYSE:SLB)? The smart money sentiment can provide an answer to this question.
Is SLB a good stock to buy now? Hedge fund interest in Schlumberger Limited. (NYSE:SLB) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SLB 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). 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 Corteva, Inc. (NYSE:CTVA), GSX Techedu Inc. (NYSE:GSX), and Weyerhaeuser Co. (NYSE:WY) to gather more data points.
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 leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let’s take a look at the recent hedge fund action surrounding Schlumberger Limited. (NYSE:SLB).
What have hedge funds been doing with Schlumberger Limited. (NYSE:SLB)?
At the end of September, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SLB over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Schlumberger Limited. (NYSE:SLB), which was worth $207.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $167.5 million worth of shares. Arrowstreet Capital, Two Sigma Advisors, and Millennium Management 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 Encompass Capital Advisors allocated the biggest weight to Schlumberger Limited. (NYSE:SLB), around 2.74% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, designating 1.75 percent of its 13F equity portfolio to SLB.
Seeing as Schlumberger Limited. (NYSE:SLB) has witnessed falling interest from the aggregate hedge fund industry, we can see that there were a few money managers that slashed their full holdings in the third quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at close to $10.6 million in stock. Jacob Rothschild’s fund, RIT Capital Partners, also dropped its stock, about $6 million worth. These transactions are interesting, as aggregate 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 Schlumberger Limited. (NYSE:SLB) but similarly valued. These stocks are Corteva, Inc. (NYSE:CTVA), GSX Techedu Inc. (NYSE:GSX), Weyerhaeuser Co. (NYSE:WY), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), TD Ameritrade Holding Corp. (NYSE:AMTD), AvalonBay Communities Inc (NYSE:AVB), and Realty Income Corporation (NYSE:O). This group of stocks’ market values match SLB’s market value.
|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 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $802 million. That figure was $1030 million in SLB’s case. Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Schlumberger Limited. (NYSE:SLB) is more popular among hedge funds. Our overall hedge fund sentiment score for SLB is 81.1. 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 returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on SLB as the stock returned 39.9% since the end of September (through 12/2) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.