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Were Hedge Funds Right About Flocking Into Core Laboratories N.V. (CLB) ?

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 Core Laboratories N.V. (NYSE:CLB).

Core Laboratories N.V. (NYSE:CLB) investors should be aware of an increase in enthusiasm from smart money recently. CLB was in 21 hedge funds’ portfolios at the end of June. There were 15 hedge funds in our database with CLB holdings at the end of the previous quarter. Our calculations also showed that CLB isn’t among the 30 most popular stocks among hedge funds (see 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.

CLB_oct2019

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. Let’s take a look at the fresh hedge fund action surrounding Core Laboratories N.V. (NYSE:CLB).

What does smart money think about Core Laboratories N.V. (NYSE:CLB)?

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in CLB a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

BRIDGEWATER ASSOCIATES

Among these funds, Select Equity Group held the most valuable stake in Core Laboratories N.V. (NYSE:CLB), which was worth $61.2 million at the end of the second quarter. On the second spot was Millennium Management which amassed $56.3 million worth of shares. Moreover, Fisher Asset Management, Ariel Investments, and Bridgewater Associates were also bullish on Core Laboratories N.V. (NYSE:CLB), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Bridgewater Associates, managed by Ray Dalio, assembled the biggest position in Core Laboratories N.V. (NYSE:CLB). Bridgewater Associates had $11.3 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also made a $6.8 million investment in the stock during the quarter. The other funds with brand new CLB positions are Vince Maddi and Shawn Brennan’s SIR Capital Management, Joel Greenblatt’s Gotham Asset Management, and Brandon Haley’s Holocene Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Core Laboratories N.V. (NYSE:CLB) but similarly valued. These stocks are Transportadora de Gas del Sur SA (NYSE:TGS), Medpace Holdings, Inc. (NASDAQ:MEDP), Allegiant Travel Company (NASDAQ:ALGT), and Pattern Energy Group Inc (NASDAQ:PEGI). All of these stocks’ market caps are closest to CLB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGS 9 28061 -3
MEDP 15 194424 -9
ALGT 18 473360 -2
PEGI 12 35680 2
Average 13.5 182881 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $244 million in CLB’s case. Allegiant Travel Company (NASDAQ:ALGT) is the most popular stock in this table. On the other hand Transportadora de Gas del Sur SA (NYSE:TGS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Core Laboratories N.V. (NYSE:CLB) is more popular among hedge funds. 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. Unfortunately CLB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CLB were disappointed as the stock returned -9.9% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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

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