Is Stantec Inc. (STN) Going To Burn These Hedge Funds ?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Stantec Inc. (NYSE:STN).

Stantec Inc. (NYSE:STN) was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. STN shareholders have witnessed an increase in support from the world’s most elite money managers of late. There were 5 hedge funds in our database with STN positions at the end of the previous quarter. Our calculations also showed that STN isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most investors, hedge funds are assumed to be unimportant, old investment vehicles of years past. While there are greater than 8000 funds in operation at the moment, Our researchers look at the upper echelon of this club, around 750 funds. These hedge fund managers have their hands on the lion’s share of all hedge funds’ total asset base, and by tracking their top investments, Insider Monkey has unearthed a number of investment strategies that have historically beaten the market. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Jonathan Barrett Luminus Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the key hedge fund action surrounding Stantec Inc. (NYSE:STN).

How are hedge funds trading Stantec Inc. (NYSE:STN)?

At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in STN over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with STN Positions

Among these funds, Luminus Management held the most valuable stake in Stantec Inc. (NYSE:STN), which was worth $60.6 million at the end of the second quarter. On the second spot was D E Shaw which amassed $5.3 million worth of shares. Moreover, Renaissance Technologies, Two Sigma Advisors, and Citadel Investment Group were also bullish on Stantec Inc. (NYSE:STN), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key hedge funds were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, created the biggest position in Stantec Inc. (NYSE:STN). Two Sigma Advisors had $1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.4 million position during the quarter.

Let’s check out hedge fund activity in other stocks similar to Stantec Inc. (NYSE:STN). We will take a look at Owens-Illinois Inc (NYSE:OI), MakeMyTrip Limited (NASDAQ:MMYT), Iridium Communications Inc. (NASDAQ:IRDM), and Albany International Corp. (NYSE:AIN). This group of stocks’ market caps match STN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OI 21 341003 -2
MMYT 11 61298 -1
IRDM 12 114056 0
AIN 15 82406 -1
Average 14.75 149691 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $71 million in STN’s case. Owens-Illinois Inc (NYSE:OI) is the most popular stock in this table. On the other hand MakeMyTrip Limited (NASDAQ:MMYT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Stantec Inc. (NYSE:STN) is even less popular than MMYT. Hedge funds dodged a bullet by taking a bearish stance towards STN. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately STN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); STN investors were disappointed as the stock returned -7.1% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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