Should You Buy SFL Corporation Ltd. (SFL)?

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards SFL Corporation Ltd. (NYSE:SFL) changed during the first quarter.

SFL Corporation Ltd. (NYSE:SFL) was in 12 hedge funds’ portfolios at the end of September. SFL shareholders have witnessed an increase in enthusiasm from smart money in recent months. There were 11 hedge funds in our database with SFL holdings at the end of the previous quarter. Our calculations also showed that SFL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a gander at the new hedge fund action regarding SFL Corporation Ltd. (NYSE:SFL).

How have hedgies been trading SFL Corporation Ltd. (NYSE:SFL)?

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in SFL a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in SFL Corporation Ltd. (NYSE:SFL) was held by Carlson Capital, which reported holding $11.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $11 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and GLG Partners. In terms of the portfolio weights assigned to each position Carlson Capital allocated the biggest weight to SFL Corporation Ltd. (NYSE:SFL), around 0.2% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to SFL.

Consequently, some big names were breaking ground themselves. PDT Partners, managed by Peter Muller, created the biggest position in SFL Corporation Ltd. (NYSE:SFL). PDT Partners had $2.8 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also initiated a $0.2 million position during the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SFL Corporation Ltd. (NYSE:SFL) but similarly valued. We will take a look at Groupon Inc (NASDAQ:GRPN), Change Healthcare Inc. (NASDAQ:CHNG), Granite Construction Incorporated (NYSE:GVA), and American Woodmark Corporation (NASDAQ:AMWD). This group of stocks’ market values match SFL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GRPN 21 274180 -3
CHNG 22 255472 -7
GVA 11 38136 0
AMWD 13 41896 4
Average 16.75 152421 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $61 million in SFL’s case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Granite Construction Incorporated (NYSE:GVA) is the least popular one with only 11 bullish hedge fund positions. SFL Corporation Ltd. (NYSE:SFL) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SFL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SFL investors were disappointed as the stock returned 0.9% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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