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Did Hedge Funds Make The Right Call On TopBuild Corp (BLD) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of TopBuild Corp (NYSE:BLD) based on that data and determine whether they were really smart about the stock.

TopBuild Corp (NYSE:BLD) was in 20 hedge funds’ portfolios at the end of March. BLD has seen a decrease in enthusiasm from smart money lately. There were 29 hedge funds in our database with BLD holdings at the end of the previous quarter. Our calculations also showed that BLD 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).

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

To the average investor there are several formulas investors put to use to appraise stocks. A duo of the most innovative formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can trounce the market by a superb margin (see the details here).

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 we’re going to take a peek at the key hedge fund action encompassing TopBuild Corp (NYSE:BLD).

What have hedge funds been doing with TopBuild Corp (NYSE:BLD)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BLD over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Hawk Ridge Management, managed by David Brown, holds the biggest position in TopBuild Corp (NYSE:BLD). Hawk Ridge Management has a $12.8 million position in the stock, comprising 2.2% of its 13F portfolio. Sitting at the No. 2 spot is Columbus Circle Investors, managed by Principal Global Investors, which holds a $11.4 million position; 0.6% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism contain Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Hawk Ridge Management allocated the biggest weight to TopBuild Corp (NYSE:BLD), around 2.16% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, designating 1.89 percent of its 13F equity portfolio to BLD.

Due to the fact that TopBuild Corp (NYSE:BLD) has experienced bearish sentiment from the smart money, we can see that there lies a certain “tier” of funds that elected to cut their positions entirely in the first quarter. Intriguingly, Israel Englander’s Millennium Management dumped the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $28.1 million in stock. Anthony Joseph Vaccarino’s fund, North Fourth Asset Management, also sold off its stock, about $3.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 9 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TopBuild Corp (NYSE:BLD) but similarly valued. These stocks are LendingTree, Inc (NASDAQ:TREE), Lattice Semiconductor Corporation (NASDAQ:LSCC), Assured Guaranty Ltd. (NYSE:AGO), and W.R. Grace & Co. (NYSE:GRA). This group of stocks’ market caps are closest to BLD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TREE 21 74029 -5
LSCC 26 531051 -6
AGO 28 299640 -5
GRA 35 866211 -11
Average 27.5 442733 -6.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $443 million. That figure was $80 million in BLD’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand LendingTree, Inc (NASDAQ:TREE) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks TopBuild Corp (NYSE:BLD) is even less popular than TREE. Hedge funds clearly dropped the ball on BLD as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on BLD as the stock returned 86.1% since the end of March and outperformed the market by an even larger margin.

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