It's earnings season and that means that everybody is transfixed on what this quarter's numbers might mean for the market.
But ignore the earnings announcements for a moment. There's a little known SEC form that companies are sending in this quarter that could make you bigger gains than the next round of earnings data.
I'm talking about the 13-F. Institutional investors with more than $100 million in assets are required to file a 13-F, a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investor who manages more than that $100 million watermark are required to file a 13F.
Big earnings season moves are predicated on surprises - by definition, they're impossible to predict with any regularity. But a sneak peek at what the "smart money" is doing? That's pretty valuable.
13-F filings can provide a mountain of data to investors - and not always what you think.
Typically, investors fixate on the stocks that professional investors are buying. But buys are only half the story.
Instead, there's a much bigger message coming from the stocks they're selling. And in 2017, as the stock market plows into new all-time highs this winter, hedge funds are sending a message by dumping shares in a handful of big stocks. The question here is whether you should join them.
When institutional investors unload stocks, they're sending a big message. After all, admitting to their "sell list" is often an act of contrition for hedge funds - and even the most disciplined investors don't like spotlighting the names they're getting hammered on.
Taking a close look at fund managers' hate list is valuable for two important reasons: it includes names you should sell too, and it includes names that could actually present buying opportunities.
Why would you buy a name that pro investors hate?
It's because, often, when investors get emotionally involved with the names in their portfolios, they do the wrong thing. The big performance gap between hedge funds and the S&P 500 index in the last couple of years is proof of that. So that leaves us free to take a more sober look at the names fund managers are capitulating on.
So, without further ado, here's a look at three stocks fund managers hate the most.
Bank of Nova Scotia
The financial sector was high on fund managers' hate list this past quarter - and while there was no shortage of banks that pro investors dumped during the start of 2017, one particular bank had a special place for sellers: Bank of Nova Scotia (BNS) . This Canadian banking stock, better known as Scotiabank, saw a net sell operation of 16.45 million shares by early-filing funds, representing a $1.22-billion-dollar value at current price levels.
Scotiabank is the third-largest bank in Canada, with nearly $900 billion CAD in assets. The firm's reach extends well beyond our neighbor to the North - Scotiabank operates in more than 55 countries, with significant operations in Latin America and Asia. Still, most of the firm's focus remains at home in Canada, a market that's a bit of a mixed bag for investors. On the one hand, Canadian regulators have created an attractive environment for incumbent banks, with high returns and limited competition. On the other hand, Canadian household debt is at record levels thanks to low interest rates and ebullient real estate prices in the country's hottest markets, creating a potential problem down the line as tightening threatens to put pressure on pricing.
Ultimately, Scotiabank's fortunes rest on growth in its Latin American operations as well as a rebound in strength for the commodity prices that are closely tied to the strength of the Canadian dollar. In other words, it's largely a timing play -- and the timing doesn't look great in 2017. BNS has been correcting hard since peaking back in February.
Funds look like they're on the right side of this trade. If you own it, consider taking recent gains off the table here...
Another stock that found itself on funds' net sell list was energy behemoth Exxon Mobil (XOM) . Early filers dumped 1.35 million shares of the supermajor during Q1, with Mitsubishi Financial and SEB among the notable sellers. In total, that group of funds unloaded a $110 million position during the first quarter, a timeframe when Exxon's share price backslid by about 10%.
Notably, that's the second-straight quarter when Exxon Mobil was one of the most-sold stocks by pro investors.
Exxon doesn't need much in the way of an introduction. The firm is the largest integrated energy company in the world, with daily production of 2.1 million barrels of liquids and 10.1 billion cubic feet of natural gas on average last year. As of the end of 2016, the firm's reserves stood at 20 billion barrels of oil equivalent last year. Since Exxon is integrated, it deals with much of that huge production volume itself, making the firm the biggest refiner and a major chemical producer as well.
While Exxon's size advantage is palpable, the failure of an energy price rebound to materialize in the past year is a major problem for the whole sector. Producers like Exxon ramp up their profitability dramatically as oil prices push above their breakeven, so while Exxon can stomach lower prices as the world's most profitable oil company on a per-barrel basis, it's far from ideal. In the near-term, Exxon's price trajectory has looked ugly, with a violation of support at $81 potentially opening up more downside risk from here.
In the meantime, it makes sense to avoid buying until shares can catch a bid above their March highs - buyers are on their heels in Exxon this spring.
Verizon Communications Inc.
Another huge stock on funds' sell list during the last quarter was Verizon Communications (VZ) . Verizon is the biggest cellular phone carrier in the country, with more than 113 million retail wireless connections. The firm is also the local phone company for around 25% of the U.S., providing fixed line phone, TV and internet services.
Being bigger is unquestionably better for Verizon - the firm gets to spread its massive infrastructure upgrade and maintenance costs across more subscribers than any of its rivals, resulting in network quality that most peers (with the exception of AT&T (T) , perhaps), can't match. The push towards internet-based TV and increasing use of connected devices is an important benefit for Verizon's FiOS fiber-to-home network. Offering faster internet connections than most peers can manage means that Verizon is future-proofing itself.
Still, Verizon isn't well-liked by funds right now. In fact, they dumped 3.87 million shares of the telco during the most recent quarter, a $190 million sell operation at current price levels. A lot of that likely has to do with the risks of rising interest rates for a high-yield stock like Verizon - the firm currently pays a hefty 4.7% dividend yield at current price levels, and rising rates elsewhere would make Verizon less attractive by comparison. Still, the risks of increased tightening are overblown in 2017 - the Fed is likely to keep a close eye on how any rate hikes impact the equity market, particularly mega-cap stocks like Verizon that are widely owned in U.S. portfolios.
Shares have been showing some constructive price action in recent weeks - a push above $50 adds a technical breakout signal to the mix. If you're looking for a buying opportunity in this stock, wait for shares to pull up above that $50 price tag first.