Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Continental Building Products Inc (NYSE:CBPX).
Is Continental Building Products Inc (NYSE:CBPX) a safe investment today? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund positions went down by 2 lately. Our calculations also showed that CBPX isn’t among the 30 most popular stocks among hedge funds. CBPX was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 18 hedge funds in our database with CBPX holdings at the end of the previous quarter.
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’ 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.
Let’s review the recent hedge fund action surrounding Continental Building Products Inc (NYSE:CBPX).
What does the smart money think about Continental Building Products Inc (NYSE:CBPX)?
At Q4’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CBPX over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Continental Building Products Inc (NYSE:CBPX), with a stake worth $27.4 million reported as of the end of December. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $22.2 million. Millennium Management, Two Sigma Advisors, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Continental Building Products Inc (NYSE:CBPX) has experienced bearish sentiment from the smart money, we can see that there exists a select few funds that slashed their positions entirely in the third quarter. At the top of the heap, Jeffrey Talpins’s Element Capital Management dumped the biggest investment of the 700 funds watched by Insider Monkey, worth close to $0.5 million in call options. Ken Griffin’s fund, Citadel Investment Group, also sold off its call options, about $0.4 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Continental Building Products Inc (NYSE:CBPX). We will take a look at Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), Atkore International Group Inc. (NYSE:ATKR), Retrophin Inc (NASDAQ:RTRX), and Sturm, Ruger & Company (NYSE:RGR). All of these stocks’ market caps are similar to CBPX’s market cap.
|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 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $83 million in CBPX’s case. Retrophin Inc (NASDAQ:RTRX) is the most popular stock in this table. On the other hand Sturm, Ruger & Company (NYSE:RGR) is the least popular one with only 14 bullish hedge fund positions. Continental Building Products Inc (NYSE:CBPX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 CBPX wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); CBPX investors were disappointed as the stock returned -2.8% 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.