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Do Hedge Funds Love Headwaters Inc (HW)?

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.

Hedge fund interest in Headwaters Inc (NYSE:HW) shares was flat at the end of last quarter. This is usually a negative indicator. 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 e.l.f. Beauty Inc (NYSE:ELF), Glaukos Corp (NYSE:GKOS), and Knowles Corp (NYSE:KN) to gather more data points.

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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Thanapun/Shutterstock.com

Thanapun/Shutterstock.com

Now, we’re going to take a look at the key action regarding Headwaters Inc (NYSE:HW).

Hedge fund activity in Headwaters Inc (NYSE:HW)

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the second quarter of 2016. By comparison, 29 hedge funds held shares or bullish call options in HW heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HedgeFundSentimentChart (32)

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, led by Ken Griffin, holds the largest position in Headwaters Inc (NYSE:HW). According to its latest 13F filing, the fund has a $19.2 million position in the stock, comprising less than 0.1% of its 13F portfolio. The second largest stake is held by FrontFour Capital Group, led by Stephen Loukas, David A. Lorber, Zachary George, which holds an $11.3 million position; 2.6% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism contain Peter Schliemann’s Rutabaga Capital Management, Richard S. Meisenberg’s ACK Asset Management and Joel Greenblatt’s Gotham Asset Management. We should note that none of these hedge funds are 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.

Due to the fact that Headwaters Inc (NYSE:HW) has encountered no change in sentiment from hedge fund managers, we must take a look at a specific group of hedge funds that decided to sell off their full holdings last quarter. Intriguingly, Eduardo Abush’s Waterfront Capital Partners sold off the biggest position of the “upper crust” of funds studied by Insider Monkey, valued at close to $4.7 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $2.2 million worth of HW shares.

Let’s also examine hedge fund activity in other stocks similar to Headwaters Inc (NYSE:HW). We will take a look at e.l.f. Beauty Inc (NYSE:ELF), Glaukos Corp (NYSE:GKOS), Knowles Corp (NYSE:KN), and Sonic Corporation (NASDAQ:SONC). All of these stocks’ market caps are closest to HW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ELF 24 62106 24
GKOS 19 175123 3
KN 11 18331 1
SONC 22 325006 4

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $85 million in HW’s case. e.l.f. Beauty Inc (NYSE:ELF) is the most popular stock in this table. On the other hand Knowles Corp (NYSE:KN) is the least popular one with only 11 bullish hedge fund positions. Headwaters Inc (NYSE:HW) 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 have a larger number of hedge funds. In this regard ELF might be a better candidate to consider taking a long position in.