Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Raven Industries, Inc. (NASDAQ:RAVN).
Raven Industries, Inc. (NASDAQ:RAVN) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds’ portfolios at the end of December. At the end of this article we will also compare RAVN to other stocks including Tootsie Roll Industries, Inc. (NYSE:TR), Phibro Animal Health Corp (NASDAQ:PAHC), and La-Z-Boy Incorporated (NYSE:LZB) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to go over the latest hedge fund action surrounding Raven Industries, Inc. (NASDAQ:RAVN).
How are hedge funds trading Raven Industries, Inc. (NASDAQ:RAVN)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. By comparison, 12 hedge funds held shares or bullish call options in RAVN a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Raven Industries, Inc. (NASDAQ:RAVN) was held by Royce & Associates, which reported holding $52.5 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $9.5 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and GAMCO Investors.
Since Raven Industries, Inc. (NASDAQ:RAVN) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few money managers who were dropping their full holdings heading into Q3. Intriguingly, Allan Mecham and Ben Raybould’s Arlington Value Capital sold off the biggest investment of the 700 funds monitored by Insider Monkey, worth an estimated $1.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Raven Industries, Inc. (NASDAQ:RAVN) but similarly valued. We will take a look at Tootsie Roll Industries, Inc. (NYSE:TR), Phibro Animal Health Corp (NASDAQ:PAHC), La-Z-Boy Incorporated (NYSE:LZB), and U.S. Physical Therapy, Inc. (NYSE:USPH). This group of stocks’ market values resemble RAVN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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 $71 million. That figure was $76 million in RAVN’s case. Phibro Animal Health Corp (NASDAQ:PAHC) is the most popular stock in this table. On the other hand Tootsie Roll Industries, Inc. (NYSE:TR) is the least popular one with only 11 bullish hedge fund positions. Raven Industries, Inc. (NASDAQ:RAVN) 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately RAVN wasn’t nearly as popular as these 15 stock and hedge funds that were betting on RAVN were disappointed as the stock returned 8.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.