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Armstrong World Industries, Inc. (AWI): Hedge Funds In Wait-and-See Mode

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Armstrong World Industries, Inc. (NYSE:AWI) from the perspective of those elite funds.

Armstrong World Industries, Inc. (NYSE:AWI) was in 29 hedge funds’ portfolios at the end of September. AWI has experienced a decrease in support from the world’s most elite money managers recently. There were 30 hedge funds in our database with AWI positions at the end of the previous quarter. Our calculations also showed that AWI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the new hedge fund action regarding Armstrong World Industries, Inc. (NYSE:AWI).

Hedge fund activity in Armstrong World Industries, Inc. (NYSE:AWI)

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AWI over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AWI_dec2019

More specifically, Cantillon Capital Management was the largest shareholder of Armstrong World Industries, Inc. (NYSE:AWI), with a stake worth $126 million reported as of the end of September. Trailing Cantillon Capital Management was Renaissance Technologies, which amassed a stake valued at $91.1 million. Gates Capital Management, D E Shaw, and AQR Capital Management 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 Gates Capital Management allocated the biggest weight to Armstrong World Industries, Inc. (NYSE:AWI), around 3.37% of its portfolio. Cantillon Capital Management is also relatively very bullish on the stock, setting aside 1.22 percent of its 13F equity portfolio to AWI.

Because Armstrong World Industries, Inc. (NYSE:AWI) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of hedge funds who were dropping their positions entirely last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the largest position of the 750 funds watched by Insider Monkey, valued at an estimated $9.8 million in stock. Minhua Zhang’s fund, Weld Capital Management, also said goodbye to its stock, about $2.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Armstrong World Industries, Inc. (NYSE:AWI). We will take a look at Eastgroup Properties Inc (NYSE:EGP), Black Hills Corporation (NYSE:BKH), Essent Group Ltd (NYSE:ESNT), and Penumbra Inc (NYSE:PEN). This group of stocks’ market valuations match AWI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EGP 10 24396 -2
BKH 19 186727 3
ESNT 23 301615 -7
PEN 23 374880 4
Average 18.75 221905 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $505 million in AWI’s case. Essent Group Ltd (NYSE:ESNT) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Armstrong World Industries, Inc. (NYSE:AWI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AWI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AWI were disappointed as the stock returned -0.5% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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