Is GCP A Good Stock To Buy Now According To Hedge Funds?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about GCP Applied Technologies Inc. (NYSE:GCP) in this article.

Is GCP a good stock to buy now? Hedge fund interest in GCP Applied Technologies Inc. (NYSE:GCP) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that GCP 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). At the end of this article we will also compare GCP to other stocks including Cytokinetics, Inc. (NASDAQ:CYTK), Maxar Technologies Inc (NYSE:MAXR), and Skyline Champion Corporation (NYSE:SKY) to get a better sense of its popularity.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Winters

David S. Winter of 40 North Management

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 we’re going to view the key hedge fund action surrounding GCP Applied Technologies Inc. (NYSE:GCP).

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

At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GCP over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Starboard Value LP was the largest shareholder of GCP Applied Technologies Inc. (NYSE:GCP), with a stake worth $137 million reported as of the end of September. Trailing Starboard Value LP was 40 North Management, which amassed a stake valued at $107.1 million. GAMCO Investors, Greenhouse Funds, and Cove Street Capital 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 40 North Management allocated the biggest weight to GCP Applied Technologies Inc. (NYSE:GCP), around 4.31% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, designating 4.07 percent of its 13F equity portfolio to GCP.

Seeing as GCP Applied Technologies Inc. (NYSE:GCP) has faced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds who sold off their entire stakes heading into Q4. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management sold off the largest investment of the 750 funds watched by Insider Monkey, valued at close to $7.2 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund cut about $0.5 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to GCP Applied Technologies Inc. (NYSE:GCP). These stocks are Cytokinetics, Inc. (NASDAQ:CYTK), Maxar Technologies Inc (NYSE:MAXR), Skyline Champion Corporation (NYSE:SKY), Edgewell Personal Care Company (NYSE:EPC), Meritor Inc (NYSE:MTOR), Heartland Express, Inc. (NASDAQ:HTLD), and Fulton Financial Corp (NASDAQ:FULT). This group of stocks’ market values resemble GCP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CYTK 26 429147 0
MAXR 17 150012 2
SKY 23 205908 0
EPC 21 188145 1
MTOR 17 192344 -1
HTLD 15 57175 2
FULT 15 36348 0
Average 19.1 179868 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $375 million in GCP’s case. Cytokinetics, Inc. (NASDAQ:CYTK) is the most popular stock in this table. On the other hand Heartland Express, Inc. (NASDAQ:HTLD) is the least popular one with only 15 bullish hedge fund positions. GCP Applied Technologies Inc. (NYSE:GCP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GCP is 53.3. 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. Hedge funds were also right about betting on GCP as the stock returned 10.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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