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Hedge Fund Sentiment Is Stagnant On Granite Construction Incorporated (GVA)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Granite Construction Incorporated (NYSE:GVA).

Granite Construction Incorporated (NYSE:GVA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as American Woodmark Corporation (NASDAQ:AMWD), Brookfield Property REIT Inc. (NASDAQ:BPR), and Uniti Group Inc. (NASDAQ:UNIT) to gather more data points. Our calculations also showed that GVA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

Nelson Obus of Wynnefield Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action encompassing Granite Construction Incorporated (NYSE:GVA).

How are hedge funds trading Granite Construction Incorporated (NYSE:GVA)?

Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GVA over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Granite Construction Incorporated (NYSE:GVA) was held by Headlands Capital, which reported holding $11.9 million worth of stock at the end of September. It was followed by Rutabaga Capital Management with a $8.4 million position. Other investors bullish on the company included Wynnefield Capital, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Headlands Capital allocated the biggest weight to Granite Construction Incorporated (NYSE:GVA), around 8.32% of its 13F portfolio. Wynnefield Capital is also relatively very bullish on the stock, designating 3.59 percent of its 13F equity portfolio to GVA.

Since Granite Construction Incorporated (NYSE:GVA) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers who sold off their full holdings last quarter. Interestingly, Renaissance Technologies dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $4.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $0.7 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Granite Construction Incorporated (NYSE:GVA) but similarly valued. We will take a look at American Woodmark Corporation (NASDAQ:AMWD), Brookfield Property REIT Inc. (NASDAQ:BPR), Uniti Group Inc. (NASDAQ:UNIT), and Berkshire Hills Bancorp, Inc. (NYSE:BHLB). This group of stocks’ market valuations are closest to GVA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMWD 13 41896 4
BPR 14 60227 -2
UNIT 22 172932 1
BHLB 10 39828 1
Average 14.75 78721 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $38 million in GVA’s case. Uniti Group Inc. (NASDAQ:UNIT) is the most popular stock in this table. On the other hand Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the least popular one with only 10 bullish hedge fund positions. Granite Construction Incorporated (NYSE:GVA) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GVA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GVA investors were disappointed as the stock returned -19.8% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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