Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Granite Construction Incorporated (NYSE:GVA)? The smart money sentiment can provide an answer to this question.
Granite Construction Incorporated (NYSE:GVA) has experienced a decrease in hedge fund sentiment recently. GVA was in 16 hedge funds’ portfolios at the end of the third quarter of 2018. There were 17 hedge funds in our database with GVA positions at the end of the previous quarter. Our calculations also showed that GVA isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the key hedge fund action surrounding Granite Construction Incorporated (NYSE:GVA).
How have hedgies been trading Granite Construction Incorporated (NYSE:GVA)?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in GVA heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Granite Construction Incorporated (NYSE:GVA), with a stake worth $28.6 million reported as of the end of September. Trailing Royce & Associates was Wynnefield Capital, which amassed a stake valued at $18.3 million. Rutabaga Capital Management, Renaissance Technologies, and Headlands Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Since Granite Construction Incorporated (NYSE:GVA) has faced falling interest from the smart money, we can see that there is a sect of money managers who sold off their full holdings in the third quarter. Interestingly, Todd J. Kantor’s Encompass Capital Advisors cut the biggest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $11.8 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund cut about $4.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s now review 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 Hudson Ltd. (NYSE:HUD), LCI Industries (NYSE:LCII), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), and Talend S.A. (NASDAQ:TLND). This group of stocks’ market caps are similar to GVA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HUD | 20 | 131364 | 2 |
| LCII | 12 | 71460 | 4 |
| SFBS | 8 | 14588 | 1 |
| TLND | 22 | 569494 | 7 |
| Average | 15.5 | 196727 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $87 million in GVA’s case. Talend S.A. (NASDAQ:TLND) is the most popular stock in this table. On the other hand ServisFirst Bancshares, Inc. (NASDAQ:SFBS) is the least popular one with only 8 bullish hedge fund positions. Granite Construction Incorporated (NYSE:GVA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TLND might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
