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Hedge Fund Sentiment Says To Steer Clear Of These 2 Trending Stocks

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Earnings season is nearly upon us in full force, and Acuity Brands, Inc. (NYSE:AYIand RPM International Inc. (NYSE:RPM) are two of the latest companies to release their quarterly results just ahead of the crush. We’ll dig into the results these two companies posted as well as how elite investors felt about them heading into the third quarter.

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Let’s start with Acuity Brands, Inc. (NYSE:AYI), a $7.67 billion provider of indoor and outdoor lighting for both the commercial and residential markets. Acuity Brands released its fourth quarter and fiscal 2015 full year results this morning, reporting records for both sales and diluted earnings per share for both the quarter and the year. In terms of revenue, Acuity Brands pulled in $759.5 million in its fiscal fourth quarter, beating consensus estimates by $4.6 million as well as its revenue for the same quarter a year ago by $90.8 million. EPS for the quarter came in at $1.63, a beat of $0.01, while diluted EPS was $1.38, an increase of $0.12 from a year ago. The company reported broad sales growth across most product categories and geographical locations, despite a reduction in the sales price of some of its LED light fixtures. Shares are up by 2.00% today following the beats, which continues the trend of Acuity Brands beating estimates.

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Hedge funds tracked by Insider Monkey were rather bearish towards Acuity Brands, Inc. (NYSE:AYI) in the second quarter however, as the number of investors holding long positions declined by five to 27, while the aggregate value of their holdings slid by $95.4 million to $365.51 million despite the stock appreciating by about 7% during the quarter. After strong first quarter gains of 20%, it appears investors may have felt the easy money was made and were moving capital into other stocks. Those investors have thus far been right, as shares of Acuity Brands were flat in the third quarter.

Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 118% since August 2012, beating the S&P 500 ETF (SPY) by over 60 percentage points (read more details here).

Ken Heebner’s Capital Growth Management was the largest shareholder of Acuity Brands in our database on June 30, owning 530,000 shares worth $95.39 million. Israel Englander’s Millennium Management was one of the funds to move on from the stock after reaping its first quarter rewards, selling its position of over 192,000 shares during the second quarter.

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