Is Holdings Inc (ALRM) Going to Burn These Hedge Funds?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Holdings Inc (NASDAQ:ALRM) to find out whether there were any major changes in hedge funds’ views.

Hedge fund interest in Holdings Inc (NASDAQ:ALRM) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ALRM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). 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 Agree Realty Corporation (NYSE:ADC), KB Home (NYSE:KBH), and Ryman Hospitality Properties, Inc. (NYSE:RHP) to gather more data points.

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 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 S&P 500 ETFs by 115 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 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.

Charles Akre Akre Capital Management

Charles Akre of Akre Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s check out the new hedge fund action regarding Holdings Inc (NASDAQ:ALRM).

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

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ALRM over the last 23 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Akre Capital Management held the most valuable stake in Holdings Inc (NASDAQ:ALRM), which was worth $171.2 million at the end of the fourth quarter. On the second spot was Bares Capital Management which amassed $26.1 million worth of shares. Montanaro Asset Management, Motley Fool Asset Management, and Fisher Asset 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 Montanaro Asset Management allocated the biggest weight to Holdings Inc (NASDAQ:ALRM), around 3.4% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, designating 1.33 percent of its 13F equity portfolio to ALRM.

Since Holdings Inc (NASDAQ:ALRM) has experienced declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their full holdings in the first quarter. Interestingly, Valerie Malter’s Matarin Capital dropped the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $7.3 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dumped about $1.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Holdings Inc (NASDAQ:ALRM) but similarly valued. These stocks are Agree Realty Corporation (NYSE:ADC), KB Home (NYSE:KBH), Ryman Hospitality Properties, Inc. (NYSE:RHP), Driven Brands Holdings Inc. (NASDAQ:DRVN), Portland General Electric Company (NYSE:POR), PS Business Parks Inc (NYSE:PSB), and Chesapeake Energy Corporation (NASDAQ:CHK). This group of stocks’ market values are similar to ALRM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADC 18 200418 2
KBH 24 359374 -4
RHP 22 356062 2
DRVN 18 137611 18
POR 21 68488 2
PSB 12 112420 -3
CHK 42 1821541 42
Average 22.4 436559 8.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $437 million. That figure was $315 million in ALRM’s case. Chesapeake Energy Corporation (NASDAQ:CHK) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 12 bullish hedge fund positions. Holdings Inc (NASDAQ:ALRM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALRM is 39.8. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately ALRM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ALRM investors were disappointed as the stock returned -7.4% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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