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Did Hedge Funds Make The Right Call On Valmont Industries, Inc. (VMI) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Valmont Industries, Inc. (NYSE:VMI) and determine whether hedge funds had an edge regarding this stock.

Valmont Industries, Inc. (NYSE:VMI) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of March. At the end of this article we will also compare VMI to other stocks including Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), Kohl’s Corporation (NYSE:KSS), and UMB Financial Corporation (NASDAQ:UMBF) to get a better sense of its popularity.

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

In the financial world there are plenty of formulas market participants use to evaluate stocks. Some of the most useful formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outpace their index-focused peers by a very impressive amount (see the details here).

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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 if you have any good ideas send us an email. Now we’re going to review the latest hedge fund action encompassing Valmont Industries, Inc. (NYSE:VMI).

What does smart money think about Valmont Industries, Inc. (NYSE:VMI)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in VMI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is VMI A Good Stock To Buy?

More specifically, Impax Asset Management was the largest shareholder of Valmont Industries, Inc. (NYSE:VMI), with a stake worth $107.2 million reported as of the end of September. Trailing Impax Asset Management was Royce & Associates, which amassed a stake valued at $34.1 million. Nitorum Capital, Harvey Partners, and Millennium 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 Harvey Partners allocated the biggest weight to Valmont Industries, Inc. (NYSE:VMI), around 8.04% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, setting aside 2.29 percent of its 13F equity portfolio to VMI.

Judging by the fact that Valmont Industries, Inc. (NYSE:VMI) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of money managers that elected to cut their positions entirely by the end of the first quarter. It’s worth mentioning that Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, worth close to $2.7 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also dumped its stock, about $2.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Valmont Industries, Inc. (NYSE:VMI). We will take a look at Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), Kohl’s Corporation (NYSE:KSS), UMB Financial Corporation (NASDAQ:UMBF), and Alkermes Plc (NASDAQ:ALKS). All of these stocks’ market caps are similar to VMI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DCPH 28 603787 0
KSS 26 145325 -2
UMBF 15 46125 -4
ALKS 30 509143 -3
Average 24.75 326095 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $219 million in VMI’s case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 15 bullish hedge fund positions. Valmont Industries, Inc. (NYSE:VMI) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately VMI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VMI investors were disappointed as the stock returned 7.7% during the second 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 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.