Is ACA A Good Stock To Buy According To Hedge Funds?

In this article we will analyze whether Arcosa, Inc. (NYSE:ACA) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is ACA a good stock to buy? Prominent investors were in a bullish mood. The number of long hedge fund bets went up by 3 recently. Arcosa, Inc. (NYSE:ACA) was in 19 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 28. Our calculations also showed that ACA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 16 hedge funds in our database with ACA holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s analyze the new hedge fund action encompassing Arcosa, Inc. (NYSE:ACA).

Do Hedge Funds Think ACA Is A Good Stock To Buy Now?

At third quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in ACA a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in Arcosa, Inc. (NYSE:ACA) was held by Royce & Associates, which reported holding $70.7 million worth of stock at the end of September. It was followed by Parsifal Capital Management with a $25.2 million position. Other investors bullish on the company included Yacktman Asset Management, D E Shaw, and Ancora Advisors. In terms of the portfolio weights assigned to each position Parsifal Capital Management allocated the biggest weight to Arcosa, Inc. (NYSE:ACA), around 4.5% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, earmarking 2.49 percent of its 13F equity portfolio to ACA.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Renaissance Technologies, founded by Jim Simons, created the most outsized position in Arcosa, Inc. (NYSE:ACA). Renaissance Technologies had $2.3 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $1.4 million position during the quarter. The other funds with brand new ACA positions are Dmitry Balyasny’s Balyasny Asset Management, Donald Sussman’s Paloma Partners, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arcosa, Inc. (NYSE:ACA) but similarly valued. We will take a look at SunPower Corporation (NASDAQ:SPWR), Mesoblast Limited (NASDAQ:MESO), iRobot Corporation (NASDAQ:IRBT), Zymeworks Inc. (NYSE:ZYME), Extended Stay America Inc (NASDAQ:STAY), Ovintiv Inc. (NYSE:OVV), and HMS Holdings Corp. (NASDAQ:HMSY). This group of stocks’ market values resemble ACA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPWR 14 91257 -2
MESO 3 2921 0
IRBT 25 162591 3
ZYME 29 748757 -2
STAY 23 276413 -7
OVV 20 86209 4
HMSY 26 86934 10
Average 20 207869 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $170 million in ACA’s case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 3 bullish hedge fund positions. Arcosa, Inc. (NYSE:ACA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ACA is 59.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ACA as the stock returned 20.2% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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