Hedge Funds Are Betting On International Seaways, Inc. (INSW)

Abigail Fisher

Wed, Oct 30, 2019, 6:21 PM

The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at International Seaways, Inc. (NYSE:INSW) from the perspective of those elite funds.

International Seaways, Inc. (NYSE:INSW) has experienced an increase in hedge fund interest recently. INSW was in 15 hedge funds' portfolios at the end of June. There were 11 hedge funds in our database with INSW positions at the end of the previous quarter. Our calculations also showed that INSW isn't among the 30 most popular stocks among hedge funds (see the video below).

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.

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. We're going to analyze the fresh hedge fund action surrounding International Seaways, Inc. (NYSE:INSW).

What does smart money think about International Seaways, Inc. (NYSE:INSW)?

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the first quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in INSW a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in International Seaways, Inc. (NYSE:INSW) was held by Cyrus Capital Partners, which reported holding $76.1 million worth of stock at the end of March. It was followed by Paulson & Co with a $29.2 million position. Other investors bullish on the company included Mangrove Partners, Rubric Capital Management, and Yost Capital Management.

As aggregate interest increased, key money managers have been driving this bullishness. Rubric Capital Management, managed by David Rosen, initiated the largest position in International Seaways, Inc. (NYSE:INSW). Rubric Capital Management had $11.4 million invested in the company at the end of the quarter. Carson Yost's Yost Capital Management also initiated a $9.5 million position during the quarter. The other funds with brand new INSW positions are Paul Tudor Jones's Tudor Investment Corp, D. E. Shaw's D E Shaw, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's also examine hedge fund activity in other stocks similar to International Seaways, Inc. (NYSE:INSW). We will take a look at Maxar Technologies Inc. (NYSE:MAXR), New Media Investment Group Inc (NYSE:NEWM), LeMaitre Vascular Inc (NASDAQ:LMAT), and Heidrick & Struggles International, Inc. (NASDAQ:HSII). All of these stocks' market caps match INSW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAXR,12,43172,5 NEWM,14,52864,-3 LMAT,11,20419,0 HSII,13,104784,-5 Average,12.5,55310,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $166 million in INSW's case. New Media Investment Group Inc (NYSE:NEWM) is the most popular stock in this table. On the other hand LeMaitre Vascular Inc (NASDAQ:LMAT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks International Seaways, Inc. (NYSE:INSW) 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 INSW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on INSW were disappointed as the stock returned 1.4% 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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