HOLD Hedge Funds Are Dumping Rollins, Inc. (ROL)

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Rollins, Inc. (NYSE:ROL) has seen a decrease in hedge fund sentiment of late. ROL was in 11 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with ROL positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as NVR, Inc. (NYSE:NVR), DDR Corp (NYSE:DDR), and Fortinet Inc (NASDAQ:FTNT) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

With all of this in mind, we’re going to analyze the new action encompassing Rollins, Inc. (NYSE:ROL).

What does the smart money think about Rollins, Inc. (NYSE:ROL)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 27% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in ROL at the beginning of this year. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Select Equity Group, led by Robert Joseph Caruso, holds the most valuable position in Rollins, Inc. (NYSE:ROL). According to regulatory filings, the fund has a $167.2 million position in the stock, comprising 1.4% of its 13F portfolio. On Select Equity Group’s heels is GAMCO Investors, led by Mario Gabelli, which holds a $113 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Other professional money managers that are bullish include Jim Simons’s Renaissance Technologies, one of the largest hedge funds in the world,, Benjamin A. Smith’s Laurion Capital Management and Tim Curro’s Value Holdings LP. We should note that Value Holdings LP is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that Rollins, Inc. (NYSE:ROL) has experienced falling interest from the smart money, it’s easy to see that there were a few hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Pasco Alfaro / Richard Tumure’s Miura Global Management sold off the largest position of the 700 funds monitored by Insider Monkey, totaling about $20.5 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $7.8 million worth of ROL shares.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Rollins, Inc. (NYSE:ROL) but similarly valued. We will take a look at NVR, Inc. (NYSE:NVR), DDR Corp (NYSE:DDR), Fortinet Inc (NASDAQ:FTNT), and Lamar Advertising Co (NASDAQ:LAMR). This group of stocks’ market values resemble ROL’s market value.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $374 million. That figure was $346 million in ROL’s case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand DDR Corp (NYSE:DDR) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Rollins, Inc. (NYSE:ROL) is even less popular than DDR. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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Disclosure: none.