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Are Hedge Funds Bullish On Green Plains Inc. (GPRE)?

Debasis Saha
·Lesedauer: 6 Min.

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Green Plains Inc. (NASDAQ:GPRE) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Green Plains Inc. (NASDAQ:GPRE) was in 13 hedge funds' portfolios at the end of the first quarter of 2020. GPRE has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 18 hedge funds in our database with GPRE holdings at the end of the previous quarter. Our calculations also showed that GPRE 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.

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 S&P 500 ETFs by more than 58 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_758477" align="aligncenter" width="400"] Andy Redleaf of Whitebox Advisors[/caption]

Andy Redleaf Andrew Redleaf Whitebox Advisors
Andy Redleaf Andrew Redleaf Whitebox Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 PayPal alternatives for international payments to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind we're going to take a glance at the key hedge fund action regarding Green Plains Inc. (NASDAQ:GPRE).

How are hedge funds trading Green Plains Inc. (NASDAQ:GPRE)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in GPRE a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GPRE A Good Stock To Buy?
Is GPRE A Good Stock To Buy?

More specifically, Mangrove Partners was the largest shareholder of Green Plains Inc. (NASDAQ:GPRE), with a stake worth $17 million reported as of the end of September. Trailing Mangrove Partners was Rubric Capital Management, which amassed a stake valued at $10.4 million. Renaissance Technologies, D E Shaw, and Citadel Investment 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 Mangrove Partners allocated the biggest weight to Green Plains Inc. (NASDAQ:GPRE), around 2.35% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, designating 1.64 percent of its 13F equity portfolio to GPRE.

Seeing as Green Plains Inc. (NASDAQ:GPRE) has faced a decline in interest from the smart money, it's safe to say that there were a few fund managers that slashed their entire stakes in the first quarter. Interestingly, Todd J. Kantor's Encompass Capital Advisors sold off the biggest stake of the "upper crust" of funds watched by Insider Monkey, worth close to $21.9 million in stock, and George McCabe's Portolan Capital Management was right behind this move, as the fund dropped about $5.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 5 funds in the first quarter.

Let's go over hedge fund activity in other stocks similar to Green Plains Inc. (NASDAQ:GPRE). We will take a look at PDL Community Bancorp (NASDAQ:PDLB), Entravision Communications Corporation (NYSE:EVC), Aspen Group Inc. (NASDAQ:ASPU), and Itamar Medical Ltd. (NASDAQ:ITMR). This group of stocks' market valuations are similar to GPRE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDLB,2,2431,0 EVC,10,18379,-3 ASPU,6,13915,-4 ITMR,8,22287,5 Average,6.5,14253,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $38 million in GPRE's case. Entravision Communications Corporation (NYSE:EVC) is the most popular stock in this table. On the other hand PDL Community Bancorp (NASDAQ:PDLB) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Green Plains Inc. (NASDAQ:GPRE) is more popular among hedge funds. 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 returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on GPRE as the stock returned 104.5% so far in Q2 (through June 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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