Was smart money right about Freeport-McMoRan Inc. (FCX)?
Of the thousands of stocks that are currently traded in the market, it is difficult to identify which ones will truly generate strong returns. Hedge funds and institutional investors spend millions of dollars on MBA and PhD analysts who are industry experts and well connected to other industry insiders and the media. Individual investors can rely on hedge funds employing these talents and can thus benefit from their vast resources and knowledge. We analyze quarterly 13F deposits from nearly 900 hedge funds, and by examining the smart money sentiment surrounding a stock, we can determine if it has the potential to beat the market in the long term. Therefore, let’s take a closer look at what Freeport-McMoRan Inc.’s (NYSE: FCX) smart money thinks.
Freeport-McMoRan Inc. (NYSE: FCX) was listed in 76 hedge fund portfolios at the end of June. The all-time high for this statistic is 68. This means that the bullish number of hedge fund positions in this stock is currently at its highest level. FCX investors should be aware of the recent increase in activity of the world’s largest hedge funds. There were 68 hedge funds in our database with FCX positions at the end of the first quarter. Our calculations also showed that FCX is not in the top 30 most popular stocks among hedge funds (click for Q2 rank).
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indexes. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 79 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Ken Griffin of Citadel Investment Group
At Insider Monkey, we scour multiple sources to uncover the next big investing idea. Recently we came across a high growth stocks which has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to choose the next Tesla that will offer a 10x return. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. We read letters from hedge fund investors and listen to equity pitches at hedge fund conferences. You can sign up for our free daily newsletter on our homepage. With all of that in mind, let’s look at the latest hedge fund action encompassing Freeport-McMoRan Inc. (NYSE: FCX).
Do hedge funds think FCX is a good stock to buy now?
At the end of the second quarter, a total of 76 of the hedge funds tracked by Insider Monkey were long in this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 53 hedge funds with a bullish position on FCX a year ago. So let’s take a look at which hedge funds were among the top stock holders and which hedge funds were making big moves.
Specifically, Fisher Asset Management was the largest shareholder in Freeport-McMoRan Inc. (NYSE: FCX), with a stake worth $ 1,692.2 million reported in late June. Lagging behind Fisher Asset Management was Diamond Hill Capital, which raised a stake valued at $ 425.3 million. Lansdowne Partners, Duquesne Capital and Citadel Investment Group were also very attached to the stock, becoming one of the largest hedge fund holders in the company. In terms of the portfolio weights assigned to each position, Kadensa Capital assigned the largest weight to Freeport-McMoRan Inc. (NYSE: FCX), approximately 14.97% of its 13F portfolio. Napier Park Global Capital is also relatively very bullish on the stock, distributing 12.12% of its 13F equity portfolio to FCX.
As interest from across the industry grew, key fund managers were innovating themselves. Diamond Hill Capital, managed by Matthew Stadelman, created the most valuable position in Freeport-McMoRan Inc. (NYSE: FCX). Diamond Hill Capital had invested $ 425.3 million in the company at the end of the quarter. Ryan Tolkin’s (CIO) Schonfeld Strategic Advisors also invested $ 22.3 million in the stock during the quarter. Other funds with brand new FCX positions are Southpoint Capital Advisors by John Smith Clark, Chiron Investment Management by Ryan Caldwell and PEAK6 Capital Management by Matthew Hulsizer.
Let’s look at hedge fund activity in other stocks – not necessarily in the same industry as Freeport-McMoRan Inc. (NYSE: FCX) but of similar value. We’ll be looking at Ambev SA (NYSE: ABEV), BioNTech SE (NASDAQ: BNTX), Aon plc (NYSE: AON), IDEXX Laboratories, Inc. (NASDAQ: IDXX), General Dynamics Corporation (NYSE: GD), Takeda Pharmaceutical Company Limited (NYSE: TAK) and Enterprise Products Partners LP (NYSE: EPD). The market valuations of this group of stocks are similar to the market valuation of FCX.
[table] Ticker, number of HF with positions, total value of HF positions (x1000), change of HF position ABEV, 18.301004.0 BNTX, 20.579146.2 AON, 68.8129736, -4 IDXX, 39.3576489, – 10 GD, 37 6235948.6 TAK, 19.551214.0 EPD, 28.246056.2 Medium, 32.7.2802799, -0.6 [/table]
Check the table here if you have formatting issues.
As you can see, these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $ 2,803 million. That figure was $ 3,870 million in the case of FCX. Aon plc (NYSE: AON) is the most popular stock in this table. On the other hand, Ambev SA (NYSE: ABEV) is the least popular with only 18 bullish hedge fund positions. Compared to these stocks, Freeport-McMoRan Inc. (NYSE: FCX) is more popular among hedge funds. Our overall hedge fund sentiment score for FCX is 90. Stocks with a higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that the 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020 and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29 and have consistently beat the market by 2.3 percentage points. Unfortunately, FCX was not as popular as these 5 stocks and the hedge funds betting on FCX were disappointed as the stock has returned 2.1% since the end of the second quarter (through 10/29) and has underperformed the market. If you want to invest in large cap stocks with huge upside potential, you should check out the 5 most popular stocks among hedge funds, as most of these stocks have already outperformed the market since 2019.
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Disclosure: none. This article originally appeared on Insider Monkey.