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Hedge Funds Are Buying The Gorman-Rupp Company (GRC)

We can judge whether The Gorman-Rupp Company (NYSE:GRC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

The Gorman-Rupp Company (NYSE:GRC) investors should be aware of an increase in enthusiasm from smart money lately. GRC was in 9 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with GRC positions at the end of the previous quarter. Our calculations also showed that GRC 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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 go over the recent hedge fund action surrounding The Gorman-Rupp Company (NYSE:GRC).

What does smart money think about The Gorman-Rupp Company (NYSE:GRC)?

Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the second quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in GRC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Gorman-Rupp Company (NYSE:GRC) was held by GAMCO Investors, which reported holding $20.2 million worth of stock at the end of September. It was followed by Royce & Associates with a $10.6 million position. Other investors bullish on the company included Renaissance Technologies, AQR Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to The Gorman-Rupp Company (NYSE:GRC), around 0.3% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to GRC.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in The Gorman-Rupp Company (NYSE:GRC). Arrowstreet Capital had $0.5 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $0.4 million investment in the stock during the quarter.

Let’s now review hedge fund activity in other stocks similar to The Gorman-Rupp Company (NYSE:GRC). We will take a look at Zealand Pharma A/S (NASDAQ:ZEAL), General American Investors Company, Inc. (NYSE:GAM), Model N Inc (NYSE:MODN), and Franklin Street Properties Corp. (NYSE:FSP). All of these stocks’ market caps are closest to GRC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZEAL 3 26137 1
GAM 5 27837 0
MODN 18 155372 6
FSP 8 41686 2
Average 8.5 62758 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $43 million in GRC’s case. Model N Inc (NYSE:MODN) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 3 bullish hedge fund positions. The Gorman-Rupp Company (NYSE:GRC) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on GRC, though not to the same extent, as the stock returned 6.8% during the first two months of the fourth quarter and outperformed the market as well.

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

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