Is Granite Construction Incorporated (GVA) A Good Stock To Buy?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Granite Construction Incorporated (NYSE:GVA) in this article.

Granite Construction Incorporated (NYSE:GVA) investors should pay attention to a decrease in hedge fund sentiment in recent months. GVA was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 16 hedge funds in our database with GVA holdings at the end of the previous quarter. Our calculations also showed that gva isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nelson Obus, Wynnefield Capital

We’re going to take a glance at the key hedge fund action surrounding Granite Construction Incorporated (NYSE:GVA).

What have hedge funds been doing with Granite Construction Incorporated (NYSE:GVA)?

Heading into the first quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in GVA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with GVA Positions

The largest stake in Granite Construction Incorporated (NYSE:GVA) was held by Royce & Associates, which reported holding $21.7 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $17.1 million position. Other investors bullish on the company included Renaissance Technologies, Wynnefield Capital, and Rutabaga Capital Management.

Due to the fact that Granite Construction Incorporated (NYSE:GVA) has witnessed a decline in interest from the smart money, logic holds that there were a few fund managers that decided to sell off their entire stakes in the third quarter. Intriguingly, Israel Englander’s Millennium Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $1.5 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dropped its stock, about $0.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Granite Construction Incorporated (NYSE:GVA). These stocks are DiamondRock Hospitality Company (NYSE:DRH), Taylor Morrison Home Corp (NYSE:TMHC), Medpace Holdings, Inc. (NASDAQ:MEDP), and Commercial Metals Company (NYSE:CMC). This group of stocks’ market valuations resemble GVA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DRH 19 167292 10
TMHC 15 219436 -6
MEDP 23 170623 -3
CMC 17 196848 -1
Average 18.5 188550 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $94 million in GVA’s case. Medpace Holdings, Inc. (NASDAQ:MEDP) is the most popular stock in this table. On the other hand Taylor Morrison Home Corp (NYSE:TMHC) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Granite Construction Incorporated (NYSE:GVA) is even less popular than TMHC. Hedge funds dodged a bullet by taking a bearish stance towards GVA. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately GVA wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); GVA investors were disappointed as the stock returned 15.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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