Do Hedge Funds Like Argan, Inc. (AGX)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Argan, Inc. (NYSE:AGX) and determine whether the smart money was really smart about this stock.

Argan, Inc. (NYSE:AGX) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. AGX was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with AGX positions at the end of the previous quarter. Our calculations also showed that AGX 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.

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.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

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. With all of this in mind let’s review the key hedge fund action regarding Argan, Inc. (NYSE:AGX).

What does smart money think about Argan, Inc. (NYSE:AGX)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in AGX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Among these funds, Park West Asset Management held the most valuable stake in Argan, Inc. (NYSE:AGX), which was worth $25.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $11.7 million worth of shares. Brightlight Capital, Royce & Associates, and Third Avenue 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 Brightlight Capital allocated the biggest weight to Argan, Inc. (NYSE:AGX), around 6.66% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, earmarking 2.37 percent of its 13F equity portfolio to AGX.

Since Argan, Inc. (NYSE:AGX) has witnessed falling interest from the smart money, we can see that there exists a select few fund managers that slashed their entire stakes in the first quarter. Intriguingly, Jim Roumell’s Roumell Asset Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, worth about $1.4 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also dropped its stock, about $1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Argan, Inc. (NYSE:AGX). We will take a look at Star Bulk Carriers Corp. (NASDAQ:SBLK), MBIA Inc. (NYSE:MBI), EnLink Midstream LLC (NYSE:ENLC), and Orthofix Medical Inc (NASDAQ:OFIX). This group of stocks’ market valuations resemble AGX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBLK 11 255482 -5
MBI 15 108148 -9
ENLC 7 14255 -4
OFIX 17 77612 1
Average 12.5 113874 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $70 million in AGX’s case. Orthofix Medical Inc (NASDAQ:OFIX) is the most popular stock in this table. On the other hand EnLink Midstream LLC (NYSE:ENLC) is the least popular one with only 7 bullish hedge fund positions. Argan, Inc. (NYSE:AGX) is not the least popular stock in this group but hedge fund interest is still below average. 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 still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on AGX as the stock returned 38% during the second quarter and outperformed the market by an even larger margin.

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