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Hedge Funds Never Loved AZZ Incorporated (AZZ) More

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of AZZ Incorporated (NYSE:AZZ).

AZZ Incorporated (NYSE:AZZ) investors should be aware of an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that AZZ isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 58 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 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 stocks that are in our short portfolio.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action surrounding AZZ Incorporated (NYSE:AZZ).

How have hedgies been trading AZZ Incorporated (NYSE:AZZ)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AZZ over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, GAMCO Investors was the largest shareholder of AZZ Incorporated (NYSE:AZZ), with a stake worth $6.6 million reported as of the end of September. Trailing GAMCO Investors was Citadel Investment Group, which amassed a stake valued at $4.7 million. Rutabaga Capital Management, D E Shaw, and Millennium Management 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 2.69% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.34 percent of its 13F equity portfolio to AZZ.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, initiated the most outsized position in AZZ Incorporated (NYSE:AZZ). Algert Coldiron Investors had $0.8 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.3 million investment in the stock during the quarter. The other funds with brand new AZZ positions are Joel Greenblatt’s Gotham Asset Management, Peter Muller’s PDT Partners, and Chuck Royce’s Royce & Associates.

Let’s now review hedge fund activity in other stocks similar to AZZ Incorporated (NYSE:AZZ). These stocks are Medifast, Inc. (NYSE:MED), Pampa Energia S.A. (NYSE:PAM), Benchmark Electronics, Inc. (NYSE:BHE), and Upwork Inc. (NASDAQ:UPWK). This group of stocks’ market valuations are similar to AZZ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MED 16 217606 -3
PAM 7 36956 -3
BHE 14 24868 -5
UPWK 22 107524 -2
Average 14.75 96739 -3.25

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 $97 million. That figure was $31 million in AZZ’s case. Upwork Inc. (NASDAQ:UPWK) is the most popular stock in this table. On the other hand Pampa Energia S.A. (NYSE:PAM) is the least popular one with only 7 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. 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 13.4% in 2020 through June 22nd but beat the market by 15.9 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 20.6% during the same time period 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.