At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Genesis Energy, L.P. (NYSE:GEL) makes for a good investment right now.
Is Genesis Energy, L.P. (NYSE:GEL) a healthy stock for your portfolio? Prominent investors were becoming less confident. The number of long hedge fund bets went down by 1 recently. Genesis Energy, L.P. (NYSE:GEL) was in 3 hedge funds’ portfolios at the end of September. The all time high for this statistics is 10. Our calculations also showed that GEL isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s check out the fresh hedge fund action encompassing Genesis Energy, L.P. (NYSE:GEL).
What have hedge funds been doing with Genesis Energy, L.P. (NYSE:GEL)?
At third quarter’s end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the second quarter of 2020. On the other hand, there were a total of 2 hedge funds with a bullish position in GEL a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Genesis Energy, L.P. (NYSE:GEL), with a stake worth $3.4 million reported as of the end of September. Trailing Arrowstreet Capital was Granite Point Capital, which amassed a stake valued at $2.7 million. Knighthead Capital was 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 Knighthead Capital allocated the biggest weight to Genesis Energy, L.P. (NYSE:GEL), around 0.35% of its 13F portfolio. Granite Point Capital is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to GEL.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified GEL as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Genesis Energy, L.P. (NYSE:GEL) but similarly valued. These stocks are The York Water Company (NASDAQ:YORW), Adecoagro SA (NYSE:AGRO), The Chefs Warehouse, Inc (NASDAQ:CHEF), Fluidigm Corporation (NASDAQ:FLDM), Poseida Therapeutics, Inc. (NASDAQ:PSTX), trivago N.V. (NASDAQ:TRVG), and ACCO Brands Corporation (NYSE:ACCO). This group of stocks’ market valuations resemble GEL’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $6 million in GEL’s case. Fluidigm Corporation (NASDAQ:FLDM) is the most popular stock in this table. On the other hand trivago N.V. (NASDAQ:TRVG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Genesis Energy, L.P. (NYSE:GEL) is even less popular than TRVG. Our overall hedge fund sentiment score for GEL is 13. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on GEL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on GEL as the stock returned 49.5% since Q3 (through November 23rd) and outperformed the market by an even larger margin.
Follow Genesis Energy Lp (NYSE:GEL)
Follow Genesis Energy Lp (NYSE:GEL)
Disclosure: None. This article was originally published at Insider Monkey.