Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Valmont Industries, Inc. (NYSE:VMI)? The smart money sentiment can provide an answer to this question.
Valmont Industries, Inc. (NYSE:VMI) investors should be aware of an increase in support from the world’s most elite money managers recently. VMI was in 25 hedge funds’ portfolios at the end of the second quarter of 2019. There were 19 hedge funds in our database with VMI positions at the end of the previous quarter. Our calculations also showed that VMI isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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 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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action regarding Valmont Industries, Inc. (NYSE:VMI).
How are hedge funds trading Valmont Industries, Inc. (NYSE:VMI)?
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VMI over the last 16 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in Valmont Industries, Inc. (NYSE:VMI), which was worth $112.3 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $53.3 million worth of shares. Moreover, Nitorum Capital, D E Shaw, and Citadel Investment Group were also bullish on Valmont Industries, Inc. (NYSE:VMI), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in Valmont Industries, Inc. (NYSE:VMI). Balyasny Asset Management had $4.9 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $2.2 million position during the quarter. The other funds with new positions in the stock are Curtis Schenker and Craig Effron’s Scoggin, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks similar to Valmont Industries, Inc. (NYSE:VMI). These stocks are TopBuild Corp (NYSE:BLD), American Assets Trust, Inc (NYSE:AAT), Cabot Corporation (NYSE:CBT), and American States Water Co (NYSE:AWR). This group of stocks’ market valuations match VMI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BLD | 14 | 112473 | -3 |
| AAT | 15 | 127744 | 1 |
| CBT | 17 | 123633 | -3 |
| AWR | 14 | 67350 | -1 |
| Average | 15 | 107800 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $295 million in VMI’s case. Cabot Corporation (NYSE:CBT) is the most popular stock in this table. On the other hand TopBuild Corp (NYSE:BLD) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Valmont Industries, Inc. (NYSE:VMI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on VMI as the stock returned 9.5% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
