2019 Review: Most Favored Hedge Fund Stocks vs. BMC Stock Holdings, Inc. (BMCH)

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding BMC Stock Holdings, Inc. (NASDAQ:BMCH) and see how the stock performed in comparison to hedge funds’ consensus picks.

BMC Stock Holdings, Inc. (NASDAQ:BMCH) has seen an increase in hedge fund interest in recent months. BMCH was in 27 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with BMCH holdings at the end of the previous quarter. Our calculations also showed that BMCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

To the average investor there are plenty of gauges stock traders put to use to assess their stock investments. A duo of the less known gauges are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can outpace the broader indices by a very impressive amount (see the details here).

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to analyze the key hedge fund action regarding BMC Stock Holdings, Inc. (NASDAQ:BMCH).

Hedge fund activity in BMC Stock Holdings, Inc. (NASDAQ:BMCH)

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BMCH over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Coliseum Capital, managed by Christopher Shackelton and Adam Gray, holds the biggest position in BMC Stock Holdings, Inc. (NASDAQ:BMCH). Coliseum Capital has a $82.3 million position in the stock, comprising 23% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies which holds a $34.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain William C. Martin’s Raging Capital Management, Richard S. Meisenberg’s ACK Asset Management and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Coliseum Capital allocated the biggest weight to BMC Stock Holdings, Inc. (NASDAQ:BMCH), around 23.03% of its 13F portfolio. Soapstone Capital is also relatively very bullish on the stock, earmarking 6.06 percent of its 13F equity portfolio to BMCH.

As industrywide interest jumped, key money managers have been driving this bullishness. PDT Partners, managed by Peter Muller, created the biggest position in BMC Stock Holdings, Inc. (NASDAQ:BMCH). PDT Partners had $1.5 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $1.4 million position during the quarter. The following funds were also among the new BMCH investors: Matthew Hulsizer’s PEAK6 Capital Management, Ken Griffin’s Citadel Investment Group, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to BMC Stock Holdings, Inc. (NASDAQ:BMCH). These stocks are Constellium SE (NYSE:CSTM), iRobot Corporation (NASDAQ:IRBT), Trinseo S.A. (NYSE:TSE), and Bottomline Technologies (de), Inc. (NASDAQ:EPAY). This group of stocks’ market valuations are closest to BMCH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSTM 43 412365 6
IRBT 11 52517 2
TSE 13 85449 -10
EPAY 19 85411 3
Average 21.5 158936 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $287 million in BMCH’s case. Constellium SE (NYSE:CSTM) is the most popular stock in this table. On the other hand iRobot Corporation (NASDAQ:IRBT) is the least popular one with only 11 bullish hedge fund positions. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BMCH as the stock returned 86.7% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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