Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about TopBuild Corp (NYSE:BLD).
Is BLD a good stock to buy now? TopBuild Corp (NYSE:BLD) has seen a decrease in activity from the world’s largest hedge funds lately. TopBuild Corp (NYSE:BLD) was in 21 hedge funds’ portfolios at the end of September. The all time high for this statistic is 30. Our calculations also showed that BLD 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let’s take a look at the fresh hedge fund action encompassing TopBuild Corp (NYSE:BLD).
Do Hedge Funds Think BLD Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in BLD a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in TopBuild Corp (NYSE:BLD) was held by Columbus Circle Investors, which reported holding $34.2 million worth of stock at the end of September. It was followed by Capital Growth Management with a $17.9 million position. Other investors bullish on the company included Adage Capital Management, Driehaus Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to TopBuild Corp (NYSE:BLD), around 1.87% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, dishing out 1.49 percent of its 13F equity portfolio to BLD.
Seeing as TopBuild Corp (NYSE:BLD) has experienced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling about $13.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dropped about $9.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 9 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to TopBuild Corp (NYSE:BLD). We will take a look at BigCommerce Holdings, Inc. (NASDAQ:BIGC), TIM Participacoes SA (NYSE:TSU), Flex Ltd. (NASDAQ:FLEX), Santander Consumer USA Holdings Inc (NYSE:SC), AGCO Corporation (NYSE:AGCO), Hill-Rom Holdings, Inc. (NYSE:HRC), and Federal Realty Investment Trust (NYSE:FRT). This group of stocks’ market values are closest to BLD’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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 $386 million. That figure was $124 million in BLD’s case. Hill-Rom Holdings, Inc. (NYSE:HRC) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 13 bullish hedge fund positions. TopBuild Corp (NYSE:BLD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BLD is 36. 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 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 surpassed the market again by 15.8 percentage points. Unfortunately BLD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BLD investors were disappointed as the stock returned 0.6% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.
- 10 Best Biotech Stocks To Invest In
- 10 Best Penny Stocks To Buy Now
- Best Long-term Stocks To Buy Now
Disclosure: None. This article was originally published at Insider Monkey.