“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Stericycle Inc (NASDAQ:SRCL).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s analyze the latest hedge fund action surrounding Stericycle Inc (NASDAQ:SRCL).
What have hedge funds been doing with Stericycle Inc (NASDAQ:SRCL)?
Heading into the fourth quarter of 2018, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SRCL over the last 13 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Ariel Investments held the most valuable stake in Stericycle Inc (NASDAQ:SRCL), which was worth $112.4 million at the end of the third quarter. On the second spot was Polar Capital which amassed $57.1 million worth of shares. Moreover, Markel Gayner Asset Management, Tamarack Capital Management, and Diamond Hill Capital were also bullish on Stericycle Inc (NASDAQ:SRCL), allocating a large percentage of their portfolios to this stock.
Because Stericycle Inc (NASDAQ:SRCL) has witnessed declining sentiment from the smart money, logic holds that there lies a certain “tier” of hedge funds who were dropping their positions entirely heading into Q3. Intriguingly, Jim Simons’s Renaissance Technologies dumped the largest position of the 700 funds monitored by Insider Monkey, comprising an estimated $11.9 million in stock, and Joe Milano’s Greenhouse Funds was right behind this move, as the fund cut about $7.3 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Stericycle Inc (NASDAQ:SRCL). We will take a look at Vermilion Energy Inc (NYSE:VET), Landstar System, Inc. (NASDAQ:LSTR), Lions Gate Entertainment Corporation (NYSE:LGF-A), and IDACORP Inc (NYSE:IDA). This group of stocks’ market valuations are closest to SRCL’s market valuation.
|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 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $240 million. That figure was $270 million in SRCL’s case. Landstar System, Inc. (NASDAQ:LSTR) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 9 bullish hedge fund positions. Stericycle Inc (NASDAQ:SRCL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LSTR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.