We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Eagle Materials, Inc. (NYSE:EXP) and determine whether hedge funds skillfully traded this stock.
Eagle Materials, Inc. (NYSE:EXP) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. EXP has experienced an increase in enthusiasm from smart money of late. There were 34 hedge funds in our database with EXP positions at the end of the first quarter. Our calculations also showed that EXP 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.
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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s take a look at the new hedge fund action regarding Eagle Materials, Inc. (NYSE:EXP).
Hedge fund activity in Eagle Materials, Inc. (NYSE:EXP)
At the end of June, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. By comparison, 36 hedge funds held shares or bullish call options in EXP a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Sachem Head Capital was the largest shareholder of Eagle Materials, Inc. (NYSE:EXP), with a stake worth $214.5 million reported as of the end of September. Trailing Sachem Head Capital was Empyrean Capital Partners, which amassed a stake valued at $34.3 million. Sunriver Management, Broad Bay 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 Sachem Head Capital allocated the biggest weight to Eagle Materials, Inc. (NYSE:EXP), around 15.28% of its 13F portfolio. Cobalt Capital Management is also relatively very bullish on the stock, setting aside 7.23 percent of its 13F equity portfolio to EXP.
Consequently, key hedge funds have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the largest position in Eagle Materials, Inc. (NYSE:EXP). Adage Capital Management had $13.3 million invested in the company at the end of the quarter. Wayne Cooperman’s Cobalt Capital Management also initiated a $12.6 million position during the quarter. The other funds with new positions in the stock are Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, Israel Englander’s Millennium Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s check out hedge fund activity in other stocks similar to Eagle Materials, Inc. (NYSE:EXP). We will take a look at Verint Systems Inc. (NASDAQ:VRNT), Lexington Realty Trust (NYSE:LXP), Karuna Therapeutics, Inc. (NASDAQ:KRTX), Fate Therapeutics Inc (NASDAQ:FATE), Viavi Solutions Inc (NASDAQ:VIAV), American States Water Co (NYSE:AWR), and Saia Inc (NASDAQ:SAIA). This group of stocks’ market valuations are similar to EXP’s market valuation.
|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 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $288 million. That figure was $429 million in EXP’s case. Fate Therapeutics Inc (NASDAQ:FATE) is the most popular stock in this table. On the other hand Lexington Realty Trust (NYSE:LXP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Eagle Materials, Inc. (NYSE:EXP) is more popular among hedge funds. Our overall hedge fund sentiment score for EXP is 90. 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. 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 33% in 2020 through the end of August and still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on EXP, though not to the same extent, as the stock returned 16.4% since the end of June and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.