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Were Hedge Funds Right About Buying Schlumberger Limited. (SLB)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Schlumberger Limited. (NYSE:SLB) and determine whether hedge funds had an edge regarding this stock.

Schlumberger Limited. (NYSE:SLB) was in 49 hedge funds’ portfolios at the end of March. SLB shareholders have witnessed an increase in hedge fund interest in recent months. There were 47 hedge funds in our database with SLB holdings at the end of the previous quarter. Our calculations also showed that SLB 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).

Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the latest hedge fund action encompassing Schlumberger Limited. (NYSE:SLB).

What have hedge funds been doing with Schlumberger Limited. (NYSE:SLB)?

At Q1’s end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SLB over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in Schlumberger Limited. (NYSE:SLB) was held by Fisher Asset Management, which reported holding $172 million worth of stock at the end of September. It was followed by D E Shaw with a $97.8 million position. Other investors bullish on the company included Renaissance Technologies, International Value Advisers, and Citadel Investment Group. In terms of the portfolio weights assigned to each position International Value Advisers allocated the biggest weight to Schlumberger Limited. (NYSE:SLB), around 2.71% of its 13F portfolio. Meru Capital is also relatively very bullish on the stock, dishing out 1.38 percent of its 13F equity portfolio to SLB.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Renaissance Technologies, established the largest position in Schlumberger Limited. (NYSE:SLB). Renaissance Technologies had $51.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $34.1 million position during the quarter. The following funds were also among the new SLB investors: Benjamin A. Smith’s Laurion Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Mike Masters’s Masters Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Schlumberger Limited. (NYSE:SLB) but similarly valued. These stocks are Match Group, Inc. (NASDAQ:MTCH), Fortive Corporation (NYSE:FTV), Cadence Design Systems Inc (NASDAQ:CDNS), and Valero Energy Corporation (NYSE:VLO). All of these stocks’ market caps are closest to SLB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTCH 38 1032869 6
FTV 35 1015089 -8
CDNS 31 1339958 -11
VLO 45 275743 -1
Average 37.25 915915 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $916 million. That figure was $641 million in SLB’s case. Valero Energy Corporation (NYSE:VLO) is the most popular stock in this table. On the other hand Cadence Design Systems Inc (NASDAQ:CDNS) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Schlumberger Limited. (NYSE:SLB) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SLB as the stock returned 37.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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