Is Eagle Materials, Inc. (EXP) Going to Burn These Hedge Funds?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Eagle Materials, Inc. (NYSE:EXP).

Is Eagle Materials, Inc. (NYSE:EXP) undervalued? The smart money is becoming more confident. The number of bullish hedge fund bets moved up by 4 lately. Our calculations also showed that exp isn’t among the 30 most popular stocks among hedge funds. EXP was in 29 hedge funds’ portfolios at the end of the first quarter of 2019. There were 25 hedge funds in our database with EXP positions at the end of the previous quarter.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Scott Ferguson Sachem Head Capital

We’re going to view the recent hedge fund action encompassing Eagle Materials, Inc. (NYSE:EXP).

Hedge fund activity in Eagle Materials, Inc. (NYSE:EXP)

Heading into the second quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the fourth quarter of 2018. On the other hand, there were a total of 22 hedge funds with a bullish position in EXP a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

No of Hedge Funds with EXP Positions

More specifically, Sachem Head Capital was the largest shareholder of Eagle Materials, Inc. (NYSE:EXP), with a stake worth $280.3 million reported as of the end of March. Trailing Sachem Head Capital was Maverick Capital, which amassed a stake valued at $150.9 million. Adage Capital Management, Long Pond Capital, and Scopus Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key money managers have jumped into Eagle Materials, Inc. (NYSE:EXP) headfirst. Sachem Head Capital, managed by Scott Ferguson, created the most outsized position in Eagle Materials, Inc. (NYSE:EXP). Sachem Head Capital had $280.3 million invested in the company at the end of the quarter. John Khoury’s Long Pond Capital also initiated a $45.5 million position during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Martin Whitman’s Third Avenue Management, and Michael A. Price and Amos Meron’s Empyrean Capital Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Eagle Materials, Inc. (NYSE:EXP) but similarly valued. These stocks are ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), Cushman & Wakefield plc (NYSE:CWK), Armstrong World Industries, Inc. (NYSE:AWI), and Grupo Financiero Galicia S.A. (NASDAQ:GGAL). This group of stocks’ market caps are closest to EXP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACAD 20 1311418 0
CWK 26 308713 13
AWI 25 521911 -1
GGAL 17 114741 -2
Average 22 564196 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $564 million. That figure was $724 million in EXP’s case. Cushman & Wakefield plc (NYSE:CWK) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (NASDAQ:GGAL) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Eagle Materials, Inc. (NYSE:EXP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on EXP as the stock returned 3.6% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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