At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Generac Holdings Inc. (NYSE:GNRC).
Is GNRC a good stock to buy now? Generac Holdings Inc. (NYSE:GNRC) was in 43 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. GNRC shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 36 hedge funds in our database with GNRC positions at the end of the second quarter. Our calculations also showed that GNRC 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.
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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 glance at the key hedge fund action regarding Generac Holdings Inc. (NYSE:GNRC).
Do Hedge Funds Think GNRC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in GNRC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Generac Holdings Inc. (NYSE:GNRC), with a stake worth $145.8 million reported as of the end of September. Trailing Impax Asset Management was Millennium Management, which amassed a stake valued at $126.2 million. Ariel Investments, Citadel Investment Group, and Arrowstreet 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 Lyon Street Capital allocated the biggest weight to Generac Holdings Inc. (NYSE:GNRC), around 3.4% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, setting aside 2.09 percent of its 13F equity portfolio to GNRC.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Candlestick Capital Management, managed by Jack Woodruff, assembled the biggest position in Generac Holdings Inc. (NYSE:GNRC). Candlestick Capital Management had $34.8 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $24.2 million position during the quarter. The following funds were also among the new GNRC investors: Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund, Greg Eisner’s Engineers Gate Manager, and Brian Scudieri’s Kehrs Ridge Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Generac Holdings Inc. (NYSE:GNRC) but similarly valued. We will take a look at Ceridian HCM Holding Inc. (NYSE:CDAY), Waters Corporation (NYSE:WAT), Jacobs Engineering Group Inc. (NYSE:J), Hewlett Packard Enterprise Company (NYSE:HPE), The AES Corporation (NYSE:AES), Fortune Brands Home & Security Inc (NYSE:FBHS), and Qiagen NV (NYSE:QGEN). All of these stocks’ market caps match GNRC’s market cap.
|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 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $835 million. That figure was $734 million in GNRC’s case. Ceridian HCM Holding Inc. (NYSE:CDAY) is the most popular stock in this table. On the other hand Jacobs Engineering Group Inc. (NYSE:J) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Generac Holdings Inc. (NYSE:GNRC) is more popular among hedge funds. Our overall hedge fund sentiment score for GNRC is 90. 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 returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on GNRC as the stock returned 12% since the end of September (through 12/8) 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.