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CSW Industrials, Inc. (CSWI): Hedge Funds In Wait-and-See Mode

In this article we will check out the progression of hedge fund sentiment towards CSW Industrials, Inc. (NASDAQ:CSWI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Hedge fund interest in CSW Industrials, Inc. (NASDAQ:CSWI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CSWI to other stocks including Kronos Worldwide, Inc. (NYSE:KRO), Mesa Laboratories, Inc. (NASDAQ:MLAB), and BP Midstream Partners LP (NYSE:BPMP) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the key hedge fund action surrounding CSW Industrials, Inc. (NASDAQ:CSWI).

Hedge fund activity in CSW Industrials, Inc. (NASDAQ:CSWI)

Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in CSWI a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is CSWI A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in CSW Industrials, Inc. (NASDAQ:CSWI), which was worth $10.2 million at the end of the third quarter. On the second spot was Cove Street Capital which amassed $4.7 million worth of shares. AQR Capital Management, Citadel Investment Group, and Moerus 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 Lyon Street Capital allocated the biggest weight to CSW Industrials, Inc. (NASDAQ:CSWI), around 2% of its 13F portfolio. Moerus Capital Management is also relatively very bullish on the stock, earmarking 1.05 percent of its 13F equity portfolio to CSWI.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Algert Coldiron Investors).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CSW Industrials, Inc. (NASDAQ:CSWI) but similarly valued. These stocks are Kronos Worldwide, Inc. (NYSE:KRO), Mesa Laboratories, Inc. (NASDAQ:MLAB), BP Midstream Partners LP (NYSE:BPMP), and Phibro Animal Health Corp (NASDAQ:PAHC). This group of stocks’ market values match CSWI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KRO 13 35959 0
MLAB 7 72515 -3
BPMP 5 6669 -1
PAHC 16 53809 0
Average 10.25 42238 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $32 million in CSWI’s case. Phibro Animal Health Corp (NASDAQ:PAHC) is the most popular stock in this table. On the other hand BP Midstream Partners LP (NYSE:BPMP) is the least popular one with only 5 bullish hedge fund positions. CSW Industrials, Inc. (NASDAQ:CSWI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately CSWI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CSWI were disappointed as the stock returned 2.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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