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Were Hedge Funds Right About Dumping Star Bulk Carriers Corp. (SBLK)?

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 Star Bulk Carriers Corp. (NASDAQ:SBLK) and determine whether hedge funds had an edge regarding this stock.

Star Bulk Carriers Corp. (NASDAQ:SBLK) has seen a decrease in hedge fund interest recently. Our calculations also showed that SBLK 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 21st century investor’s toolkit there are plenty of methods investors can use to grade stocks. Two of the best methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the S&P 500 by a very impressive amount (see the details here).

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. Now let’s go over the recent hedge fund action regarding Star Bulk Carriers Corp. (NASDAQ:SBLK).

How have hedgies been trading Star Bulk Carriers Corp. (NASDAQ:SBLK)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SBLK over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SBLK A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Oaktree Capital Management, managed by Howard Marks, holds the largest position in Star Bulk Carriers Corp. (NASDAQ:SBLK). Oaktree Capital Management has a $220 million position in the stock, comprising 6.2% of its 13F portfolio. The second largest stake is held by Impala Asset Management, led by Robert Bishop, holding a $22.1 million position; 3% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish include Renaissance Technologies, Israel Englander’s Millennium Management and Peter Muller’s PDT Partners. In terms of the portfolio weights assigned to each position Oaktree Capital Management allocated the biggest weight to Star Bulk Carriers Corp. (NASDAQ:SBLK), around 6.19% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, dishing out 2.97 percent of its 13F equity portfolio to SBLK.

Since Star Bulk Carriers Corp. (NASDAQ:SBLK) has faced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that decided to sell off their entire stakes by the end of the first quarter. It’s worth mentioning that David Brown’s Hawk Ridge Management sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $6.6 million in stock, and John Horseman’s Horseman Capital Management was right behind this move, as the fund dropped about $2.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Star Bulk Carriers Corp. (NASDAQ:SBLK). These stocks are MBIA Inc. (NYSE:MBI), EnLink Midstream LLC (NYSE:ENLC), Orthofix Medical Inc (NASDAQ:OFIX), and ACM Research, Inc. (NASDAQ:ACMR). This group of stocks’ market caps are similar to SBLK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MBI 15 108148 -9
ENLC 7 14255 -4
OFIX 17 77612 1
ACMR 10 43651 0
Average 12.25 60917 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $255 million in SBLK’s case. Orthofix Medical Inc (NASDAQ:OFIX) is the most popular stock in this table. On the other hand EnLink Midstream LLC (NYSE:ENLC) is the least popular one with only 7 bullish hedge fund positions. Star Bulk Carriers Corp. (NASDAQ:SBLK) 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 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 gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately SBLK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SBLK investors were disappointed as the stock returned 17% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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