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Were Hedge Funds Right About Dumping Darling Ingredients Inc. (DAR)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about Darling Ingredients Inc. (NYSE:DAR)?

Darling Ingredients Inc. (NYSE:DAR) was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2019. DAR investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 27 hedge funds in our database with DAR holdings at the end of the previous quarter. Our calculations also showed that DAR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are numerous gauges investors employ to size up stocks. A duo of the less utilized gauges are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the top fund managers can trounce the market by a superb margin (see the details here).

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the latest hedge fund action surrounding Darling Ingredients Inc. (NYSE:DAR).

Hedge fund activity in Darling Ingredients Inc. (NYSE:DAR)

At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -41% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DAR over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Impax Asset Management was the largest shareholder of Darling Ingredients Inc. (NYSE:DAR), with a stake worth $123.4 million reported as of the end of September. Trailing Impax Asset Management was ValueAct Capital, which amassed a stake valued at $57.3 million. Fisher Asset Management, Harspring Capital Management, and Inherent Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to Darling Ingredients Inc. (NYSE:DAR), around 11.78% of its 13F portfolio. Harspring Capital Management is also relatively very bullish on the stock, designating 10.64 percent of its 13F equity portfolio to DAR.

Since Darling Ingredients Inc. (NYSE:DAR) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers that slashed their full holdings last quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of all the hedgies monitored by Insider Monkey, comprising about $10.5 million in stock, and Jonathan Barrett and Paul Segal’s Luminus Management was right behind this move, as the fund said goodbye to about $4.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 11 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Darling Ingredients Inc. (NYSE:DAR) but similarly valued. We will take a look at PacWest Bancorp (NASDAQ:PACW), Chegg Inc (NYSE:CHGG), H&R Block, Inc. (NYSE:HRB), and Intercorp Financial Services Inc. (NYSE:IFS). This group of stocks’ market valuations resemble DAR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PACW 31 249581 6
CHGG 39 422147 3
HRB 30 420973 7
IFS 2 46514 -1
Average 25.5 284804 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $295 million in DAR’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. Darling Ingredients Inc. (NYSE:DAR) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately DAR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DAR investors were disappointed as the stock returned -36.9% during the same time period 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 most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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