Here’s What Hedge Funds Think About RPM International Inc. (RPM)

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

RPM International Inc. (NYSE:RPM) investors should pay attention to a decrease in hedge fund interest in recent months. Our calculations also showed that rpm isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeff Smith

We’re going to take a glance at the recent hedge fund action regarding RPM International Inc. (NYSE:RPM).

How have hedgies been trading RPM International Inc. (NYSE:RPM)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in RPM over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RPM Positions

More specifically, Hound Partners was the largest shareholder of RPM International Inc. (NYSE:RPM), with a stake worth $200.4 million reported as of the end of March. Trailing Hound Partners was Diamond Hill Capital, which amassed a stake valued at $70.1 million. Starboard Value LP, Echo Street Capital Management, and SAYA Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because RPM International Inc. (NYSE:RPM) has experienced a decline in interest from the smart money, it’s safe to say that there was a specific group of fund managers that decided to sell off their positions entirely in the third quarter. Interestingly, Steve Cohen’s Point72 Asset Management dropped the largest investment of the 700 funds watched by Insider Monkey, valued at about $21.1 million in stock. John Osterweis’s fund, Osterweis Capital Management, also cut its stock, about $20.4 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to RPM International Inc. (NYSE:RPM). These stocks are US Foods Holding Corp. (NYSE:USFD), Nordson Corporation (NASDAQ:NDSN), L Brands Inc (NYSE:LB), and NICE Ltd. (NASDAQ:NICE). This group of stocks’ market caps match RPM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
USFD 40 1340524 -1
NDSN 13 33215 -6
LB 32 709689 -3
NICE 17 236328 2
Average 25.5 579939 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $580 million. That figure was $384 million in RPM’s case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand Nordson Corporation (NASDAQ:NDSN) is the least popular one with only 13 bullish hedge fund positions. RPM International Inc. (NYSE:RPM) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately RPM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RPM investors were disappointed as the stock returned -5.8% 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

Disclosure: None. This article was originally published at Insider Monkey.