Is G&K Services Inc (GK) A Good Stock To Buy?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Hedge fund interest in G&K Services Inc (NASDAQ:GK) shares was flat at the end of last quarter, with 11 hedge funds bullish on the stock. 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 Advanced Energy Industries, Inc. (NASDAQ:AEIS), Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), and HMS Holdings Corp. (NASDAQ:HMSY) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How have hedgies been trading G&K Services Inc (NASDAQ:GK)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. On the other hand, there were a total of 10 hedge funds with a bullish position in GK at the beginning of this year. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Alec Litowitz and Ross Laser’s Magnetar Capital has the most valuable position in G&K Services Inc (NASDAQ:GK), worth close to $78.3 million, accounting for 1.2% of its total 13F portfolio. Sitting at the No. 2 spot is Alpine Associates, led by Robert Emil Zoellner, holding a $37.4 million position; 1.4% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish consist of Alec Litowitz and Ross Laser’s Magnetar Capital, Jim Simons’ Renaissance Technologies, one of the largest hedge funds in the world, and Matthew Tewksbury’s Stevens Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually cut their positions entirely. Interestingly, Greg Poole’s Echo Street Capital Management cut the biggest stake of the 700 funds watched by Insider Monkey, worth close to $9.7 million in stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund said goodbye to about $3.8 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to G&K Services Inc (NASDAQ:GK). We will take a look at Advanced Energy Industries, Inc. (NASDAQ:AEIS), Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), HMS Holdings Corp. (NASDAQ:HMSY), and Navistar International Corp (NYSE:NAV). This group of stocks’ market caps resemble GK’s market cap.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $335 million. That figure was $170 million in GK’s case. HMS Holdings Corp. (NASDAQ:HMSY) is the most popular stock in this table. On the other hand Advanced Energy Industries, Inc. (NASDAQ:AEIS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks G&K Services Inc (NASDAQ:GK) is even less popular than AEIS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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Disclosure: None