Hedge Funds Are Getting More Bullish On AZZ Incorporated (AZZ)

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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded AZZ Incorporated (NYSE:AZZ) and determine whether the smart money was really smart about this stock.

Is AZZ Incorporated (NYSE:AZZ) a buy right now? Prominent investors were betting on the stock. The number of bullish hedge fund positions went up by 3 in recent months. AZZ Incorporated (NYSE:AZZ) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AZZ isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a gander at the new hedge fund action encompassing AZZ Incorporated (NYSE:AZZ).

What does smart money think about AZZ Incorporated (NYSE:AZZ)?

At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AZZ over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, GAMCO Investors held the most valuable stake in AZZ Incorporated (NYSE:AZZ), which was worth $13.4 million at the end of the third quarter. On the second spot was Cove Street Capital which amassed $7.5 million worth of shares. Rutabaga Capital Management, Arrowstreet Capital, and Citadel Investment Group 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 Rutabaga Capital Management allocated the biggest weight to AZZ Incorporated (NYSE:AZZ), around 2.84% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, designating 1.49 percent of its 13F equity portfolio to AZZ.

Consequently, key money managers have been driving this bullishness. Cove Street Capital, managed by Jeffrey Bronchick, established the largest position in AZZ Incorporated (NYSE:AZZ). Cove Street Capital had $7.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $4.9 million investment in the stock during the quarter. The other funds with brand new AZZ positions are Renaissance Technologies, Greg Eisner’s Engineers Gate Manager, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as AZZ Incorporated (NYSE:AZZ) but similarly valued. These stocks are Virtus Investment Partners Inc (NASDAQ:VRTS), Granite Construction Incorporated (NYSE:GVA), Herc Holdings Inc. (NYSE:HRI), Veritex Holdings Inc (NASDAQ:VBTX), Suburban Propane Partners LP (NYSE:SPH), Tilray, Inc. (NASDAQ:TLRY), and Genesis Energy, L.P. (NYSE:GEL). All of these stocks’ market caps resemble AZZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRTS 10 57944 -2
GVA 13 34126 -3
HRI 21 352087 4
VBTX 12 32557 3
SPH 2 2920 -2
TLRY 11 28918 -3
GEL 4 9414 0
Average 10.4 73995 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $57 million in AZZ’s case. Herc Holdings Inc. (NYSE:HRI) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 2 bullish hedge fund positions. AZZ Incorporated (NYSE:AZZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AZZ is 38. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately AZZ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AZZ were disappointed as the stock returned 0% in Q3 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 many of these stocks already outperformed the market so far this year.

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