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Did Hedge Funds Make The Right Call On Arcosa, Inc. (ACA) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtArcosa, Inc. (NYSE:ACA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Arcosa, Inc. (NYSE:ACA) the right investment to pursue these days? Money managers were becoming less hopeful. The number of long hedge fund positions fell by 3 lately. Our calculations also showed that ACA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ACA was in 17 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with ACA holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a gander at the recent hedge fund action regarding Arcosa, Inc. (NYSE:ACA).

What does smart money think about Arcosa, Inc. (NYSE:ACA)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ACA over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Arcosa, Inc. (NYSE:ACA) was held by Parsifal Capital Management, which reported holding $42.4 million worth of stock at the end of September. It was followed by Royce & Associates with a $41.5 million position. Other investors bullish on the company included Yacktman Asset Management, Ancora Advisors, and D E Shaw. In terms of the portfolio weights assigned to each position Parsifal Capital Management allocated the biggest weight to Arcosa, Inc. (NYSE:ACA), around 15.53% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, setting aside 6.63 percent of its 13F equity portfolio to ACA.

Seeing as Arcosa, Inc. (NYSE:ACA) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedgies who were dropping their positions entirely heading into Q4. At the top of the heap, Ken Griffin’s Citadel Investment Group dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $18.6 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dropped about $8.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Arcosa, Inc. (NYSE:ACA). These stocks are Copa Holdings, S.A. (NYSE:CPA), RH (NYSE:RH), Liberty Latin America Ltd. (NASDAQ:LILA), and Lithia Motors Inc (NYSE:LAD). All of these stocks’ market caps match ACA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPA 15 138965 -7
RH 30 549200 -8
LILA 12 98864 1
LAD 27 388450 -2
Average 21 293870 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $184 million in ACA’s case. RH (NYSE:RH) is the most popular stock in this table. On the other hand Liberty Latin America Ltd. (NASDAQ:LILA) is the least popular one with only 12 bullish hedge fund positions. Arcosa, Inc. (NYSE:ACA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately ACA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ACA investors were disappointed as the stock returned 6.3% since Q1 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 most of these stocks already outperformed the market in 2020.

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