Did Hedge Funds Make The Right Call On W.R. Grace & Co. (GRA) ?

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 W.R. Grace & Co. (NYSE:GRA) based on that data and determine whether they were really smart about the stock.

Is W.R. Grace & Co. (NYSE:GRA) the right pick for your portfolio? Hedge funds were taking a pessimistic view. The number of long hedge fund bets were cut by 11 recently. Our calculations also showed that GRA 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). GRA was in 35 hedge funds’ portfolios at the end of March. There were 46 hedge funds in our database with GRA holdings at the end of the previous quarter.

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

At the moment there are many signals market participants can use to analyze publicly traded companies. A duo of the less utilized signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can beat the market by a solid amount (see the details here).

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Keeping this in mind let’s take a glance at the latest hedge fund action regarding W.R. Grace & Co. (NYSE:GRA).

What does smart money think about W.R. Grace & Co. (NYSE:GRA)?

Heading into the second quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the fourth quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in GRA a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is GRA A Good Stock To Buy?

Among these funds, 40 North Management held the most valuable stake in W.R. Grace & Co. (NYSE:GRA), which was worth $351.2 million at the end of the third quarter. On the second spot was Soroban Capital Partners which amassed $97.2 million worth of shares. Diamond Hill Capital, Cantillon Capital Management, and Gates 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 40 North Management allocated the biggest weight to W.R. Grace & Co. (NYSE:GRA), around 21.38% of its 13F portfolio. Birch Run Capital is also relatively very bullish on the stock, setting aside 5.06 percent of its 13F equity portfolio to GRA.

Seeing as W.R. Grace & Co. (NYSE:GRA) has experienced bearish sentiment from the smart money, it’s safe to say that there exists a select few fund managers that slashed their full holdings by the end of the first quarter. It’s worth mentioning that Jacob Doft’s Highline Capital Management dumped the largest investment of all the hedgies watched by Insider Monkey, comprising an estimated $41.9 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $32.4 million worth. These moves are interesting, as total hedge fund interest fell by 11 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as W.R. Grace & Co. (NYSE:GRA) but similarly valued. We will take a look at Amicus Therapeutics, Inc. (NASDAQ:FOLD), Envista Holdings Corporation (NYSE:NVST), Tripadvisor Inc (NASDAQ:TRIP), and Tegna Inc (NYSE:TGNA). This group of stocks’ market caps are closest to GRA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FOLD 28 842269 -7
NVST 22 273772 -20
TRIP 30 492031 -9
TGNA 29 377379 10
Average 27.25 496363 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $496 million. That figure was $866 million in GRA’s case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand Envista Holdings Corporation (NYSE:NVST) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks W.R. Grace & Co. (NYSE:GRA) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on GRA as the stock returned 43.6% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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