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 STMicroelectronics N.V. (NYSE:STM).
Is STM a good stock to buy now? Prominent investors were becoming hopeful. The number of long hedge fund bets improved by 9 in recent months. STMicroelectronics N.V. (NYSE:STM) was in 21 hedge funds’ portfolios at the end of September. The all time high for this statistic is 22. Our calculations also showed that STM 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 12 hedge funds in our database with STM positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Now let’s go over the new hedge fund action encompassing STMicroelectronics N.V. (NYSE:STM).
Do Hedge Funds Think STM Is A Good Stock To Buy Now?
At third quarter’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 75% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in STM a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Point72 Asset Management held the most valuable stake in STMicroelectronics N.V. (NYSE:STM), which was worth $33.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $25.9 million worth of shares. Kayak Investment Partners, ZWEIG DIMENNA PARTNERS, and Arrowstreet Capital 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 Iszo Capital allocated the biggest weight to STMicroelectronics N.V. (NYSE:STM), around 6.5% of its 13F portfolio. Albar Capital is also relatively very bullish on the stock, designating 6.5 percent of its 13F equity portfolio to STM.
As aggregate interest increased, key money managers were breaking ground themselves. Kayak Investment Partners, managed by Daryl Smith, assembled the most valuable position in STMicroelectronics N.V. (NYSE:STM). Kayak Investment Partners had $18.1 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $17.1 million investment in the stock during the quarter. The following funds were also among the new STM investors: Brian Sheehy’s Iszo Capital, Javier Velazquez’s Albar Capital, and Israel Englander’s Millennium Management.
Let’s now take a look at hedge fund activity in other stocks similar to STMicroelectronics N.V. (NYSE:STM). We will take a look at The Travelers Companies Inc (NYSE:TRV), Okta, Inc. (NASDAQ:OKTA), V.F. Corporation (NYSE:VFC), Waste Connections, Inc. (NYSE:WCN), Ball Corporation (NYSE:BLL), Otis Worldwide Corporation (NYSE:OTIS), and Manulife Financial Corporation (NYSE:MFC). This group of stocks’ market values are similar to STM’s market value.
|Ticker||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 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $950 million. That figure was $181 million in STM’s case. Otis Worldwide Corporation (NYSE:OTIS) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks STMicroelectronics N.V. (NYSE:STM) is even less popular than MFC. Our overall hedge fund sentiment score for STM is 38.6. 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. Hedge funds clearly dropped the ball on STM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on STM as the stock returned 15.1% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.