At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Star Group L.P. (NYSE:SGU).
Is SGU a good stock to buy now? Prominent investors were selling. The number of long hedge fund positions dropped by 2 in recent months. Star Group L.P. (NYSE:SGU) was in 9 hedge funds’ portfolios at the end of September. The all time high for this statistics is 11. Our calculations also showed that SGU 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). There were 11 hedge funds in our database with SGU positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 we’re going to take a glance at the recent hedge fund action encompassing Star Group L.P. (NYSE:SGU).
Do Hedge Funds Think SGU Is A Good Stock To Buy Now?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SGU over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Star Group L.P. (NYSE:SGU) was held by Bandera Partners, which reported holding $34.3 million worth of stock at the end of September. It was followed by Moab Capital Partners with a $19.1 million position. Other investors bullish on the company included Renaissance Technologies, Locust Wood Capital Advisers, and Winton Capital Management. In terms of the portfolio weights assigned to each position Bandera Partners allocated the biggest weight to Star Group L.P. (NYSE:SGU), around 22.36% of its 13F portfolio. Moab Capital Partners is also relatively very bullish on the stock, dishing out 16.94 percent of its 13F equity portfolio to SGU.
Due to the fact that Star Group L.P. (NYSE:SGU) has experienced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few fund managers who were dropping their full holdings last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dropped the largest position of all the hedgies followed by Insider Monkey, comprising an estimated $0.3 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund sold off about $0.1 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Star Group L.P. (NYSE:SGU). These stocks are Tribune Publishing Company (NASDAQ:TPCO), Viad Corp (NYSE:VVI), UroGen Pharma Ltd. (NASDAQ:URGN), Lands’ End, Inc. (NASDAQ:LE), Sabine Royalty Trust (NYSE:SBR), Lindblad Expeditions Holdings Inc (NASDAQ:LIND), and IRSA Propiedades Comerciales S.A. (NASDAQ:IRCP). All of these stocks’ market caps are closest to SGU’s market cap.
|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 9.9 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $82 million in SGU’s case. Lindblad Expeditions Holdings Inc (NASDAQ:LIND) is the most popular stock in this table. On the other hand UroGen Pharma Ltd. (NASDAQ:URGN) is the least popular one with only 4 bullish hedge fund positions. Star Group L.P. (NYSE:SGU) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SGU is 48.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market again by 16.2 percentage points. Unfortunately SGU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SGU investors were disappointed as the stock returned -0.8% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.