Hedge Funds Never Been Less Bullish On Resideo Technologies, Inc. (REZI)

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 Resideo Technologies, Inc. (NYSE:REZI) and determine whether the smart money was really smart about this stock.

Resideo Technologies, Inc. (NYSE:REZI) has experienced a decrease in hedge fund sentiment recently. Resideo Technologies, Inc. (NYSE:REZI) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. Our calculations also showed that REZI 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Greenlight 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. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Resideo Technologies, Inc. (NYSE:REZI).

What have hedge funds been doing with Resideo Technologies, Inc. (NYSE:REZI)?

Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in REZI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is REZI A Good Stock To Buy?

Among these funds, Freshford Capital Management held the most valuable stake in Resideo Technologies, Inc. (NYSE:REZI), which was worth $120.3 million at the end of the third quarter. On the second spot was Praesidium Investment Management Company which amassed $104.1 million worth of shares. GAMCO Investors, D E Shaw, and Greenlight Capital 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 Freshford Capital Management allocated the biggest weight to Resideo Technologies, Inc. (NYSE:REZI), around 21.94% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, setting aside 10.97 percent of its 13F equity portfolio to REZI.

Seeing as Resideo Technologies, Inc. (NYSE:REZI) has faced bearish sentiment from the smart money, it’s easy to see that there exists a select few money managers that slashed their full holdings last quarter. It’s worth mentioning that Jeffrey Smith’s Starboard Value LP cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $12.7 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $2.4 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Resideo Technologies, Inc. (NYSE:REZI). These stocks are Beam Therapeutics Inc. (NASDAQ:BEAM), So-Young International Inc. (NASDAQ:SY), Rush Enterprises, Inc. (NASDAQ:RUSHB), Addus Homecare Corporation (NASDAQ:ADUS), Patrick Industries, Inc. (NASDAQ:PATK), Range Resources Corp. (NYSE:RRC), and The Geo Group, Inc. (NYSE:GEO). This group of stocks’ market values are similar to REZI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BEAM 10 238351 -1
SY 7 16753 1
RUSHB 4 30427 1
ADUS 19 67991 4
PATK 15 99917 2
RRC 23 300565 0
GEO 20 63089 6
Average 14 116728 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $368 million in REZI’s case. Range Resources Corp. (NYSE:RRC) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 4 bullish hedge fund positions. Resideo Technologies, Inc. (NYSE:REZI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for REZI is 17.1. 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 REZI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on REZI were disappointed as the stock returned -6.1% 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.