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Valvoline Inc. (VVV): Hedge Funds Are Piling In

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Valvoline Inc. (NYSE:VVV).

Valvoline Inc. (NYSE:VVV) shareholders have witnessed an increase in hedge fund sentiment in recent months. Our calculations also showed that VVV 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Parag Vora - HG Vora Capital

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 check out the key hedge fund action surrounding Valvoline Inc. (NYSE:VVV).

What have hedge funds been doing with Valvoline Inc. (NYSE:VVV)?

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VVV over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with VVV Positions

More specifically, Tensile Capital was the largest shareholder of Valvoline Inc. (NYSE:VVV), with a stake worth $62.2 million reported as of the end of March. Trailing Tensile Capital was GAMCO Investors, which amassed a stake valued at $35.5 million. D E Shaw, HG Vora Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. HG Vora Capital Management, managed by Parag Vora, initiated the biggest position in Valvoline Inc. (NYSE:VVV). HG Vora Capital Management had $29.3 million invested in the company at the end of the quarter. Michael Doheny’s Freshford Capital Management also made a $18.5 million investment in the stock during the quarter. The following funds were also among the new VVV investors: Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors, and Cliff Asness’s AQR Capital Management.

Let’s check out hedge fund activity in other stocks similar to Valvoline Inc. (NYSE:VVV). These stocks are Axon Enterprise, Inc. (NASDAQ:AAXN), Globant SA (NYSE:GLOB), Bank OZK (NASDAQ:OZK), and Eldorado Resorts Inc (NYSE:ERI). This group of stocks’ market valuations resemble VVV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAXN 16 250261 -3
GLOB 14 63286 -6
OZK 21 285631 1
ERI 37 1022483 6
Average 22 405415 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $405 million. That figure was $230 million in VVV’s case. Eldorado Resorts Inc (NYSE:ERI) is the most popular stock in this table. On the other hand Globant SA (NYSE:GLOB) is the least popular one with only 14 bullish hedge fund positions. Valvoline Inc. (NYSE:VVV) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on VVV as the stock returned 13.3% during the same time frame and outperformed the market by an even larger margin.

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

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