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How Did W.R. Grace & Co. (GRA) Perform In Comparison to Hedge Fund Favorites in 2019?

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards W.R. Grace & Co. (NYSE:GRA).

Is W.R. Grace & Co. (NYSE:GRA) an outstanding stock to buy now? Hedge funds are betting on the stock. The number of long hedge fund positions advanced by 2 lately. Our calculations also showed that GRA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

To most shareholders, hedge funds are perceived as unimportant, outdated financial vehicles of the past. While there are more than 8000 funds with their doors open at the moment, Our experts choose to focus on the top tier of this group, around 750 funds. These investment experts command the majority of the hedge fund industry’s total capital, and by watching their unrivaled picks, Insider Monkey has unearthed many investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Jeffrey Gates of Gates Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a glance at the recent hedge fund action surrounding W.R. Grace & Co. (NYSE:GRA).

How are hedge funds trading W.R. Grace & Co. (NYSE:GRA)?

At Q3’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GRA over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, 40 North Management held the most valuable stake in W.R. Grace & Co. (NYSE:GRA), which was worth $658.6 million at the end of the third quarter. On the second spot was Soroban Capital Partners which amassed $186.3 million worth of shares. Echo Street Capital Management, Iridian Asset Management, and Gates Capital 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 40 North Management allocated the biggest weight to W.R. Grace & Co. (NYSE:GRA), around 58.84% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 6 percent of its 13F equity portfolio to GRA.

As aggregate interest increased, specific money managers have jumped into W.R. Grace & Co. (NYSE:GRA) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in W.R. Grace & Co. (NYSE:GRA). Arrowstreet Capital had $14.8 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $2.3 million position during the quarter. The other funds with new positions in the stock are Daniel Beltzman and Gergory Smith’s Birch Run Capital, Benjamin A. Smith’s Laurion Capital Management, and John A. Levin’s Levin Capital Strategies.

Let’s now review hedge fund activity in other stocks similar to W.R. Grace & Co. (NYSE:GRA). We will take a look at MGIC Investment Corporation (NYSE:MTG), Blackbaud, Inc. (NASDAQ:BLKB), J2 Global Inc (NASDAQ:JCOM), and Spire Inc. (NYSE:SR). This group of stocks’ market valuations resemble GRA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTG 39 566495 4
BLKB 12 72983 2
JCOM 18 280780 -6
SR 13 80974 1
Average 20.5 250308 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $1654 million in GRA’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Blackbaud, Inc. (NASDAQ:BLKB) is the least popular one with only 12 bullish hedge fund positions. W.R. Grace & Co. (NYSE:GRA) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately GRA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GRA were disappointed as the stock returned 9.9% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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