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NewMarket Corporation (NEU): Are Hedge Funds Right About This Stock?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of NewMarket Corporation (NYSE:NEU).

Is NewMarket Corporation (NYSE:NEU) a buy, sell, or hold? Prominent investors are in a pessimistic mood. The number of long hedge fund positions shrunk by 2 lately. Our calculations also showed that NEU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). NEU was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with NEU holdings at the end of the previous quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the fresh hedge fund action regarding NewMarket Corporation (NYSE:NEU).

How are hedge funds trading NewMarket Corporation (NYSE:NEU)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in NEU a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NEU A Good Stock To Buy?

The largest stake in NewMarket Corporation (NYSE:NEU) was held by AQR Capital Management, which reported holding $68.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $34.7 million position. Other investors bullish on the company included Citadel Investment Group, GAMCO Investors, and Winton Capital Management. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to NewMarket Corporation (NYSE:NEU), around 0.25% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, dishing out 0.16 percent of its 13F equity portfolio to NEU.

Since NewMarket Corporation (NYSE:NEU) has experienced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of funds who sold off their entire stakes by the end of the first quarter. Intriguingly, Israel Englander’s Millennium Management sold off the largest position of all the hedgies monitored by Insider Monkey, comprising close to $7.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $5.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NewMarket Corporation (NYSE:NEU) but similarly valued. We will take a look at TFS Financial Corporation (NASDAQ:TFSL), Globus Medical Inc (NYSE:GMED), Legg Mason, Inc. (NYSE:LM), and Flex Ltd. (NASDAQ:FLEX). This group of stocks’ market caps resemble NEU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TFSL 9 134718 -2
GMED 19 166330 -10
LM 38 944444 1
FLEX 24 801436 -10
Average 22.5 511732 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $143 million in NEU’s case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. NewMarket Corporation (NYSE:NEU) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th and surpassed the market by 14.8 percentage points. Unfortunately NEU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NEU investors were disappointed as the stock returned 8.3% during the second 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 10 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.