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Is Sterling Construction Company, Inc. (STRL) Going to Burn These Hedge Funds?

In this article we will check out the progression of hedge fund sentiment towards Sterling Construction Company, Inc. (NASDAQ:STRL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Sterling Construction Company, Inc. (NASDAQ:STRL) going to take off soon? Prominent investors are getting less bullish. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that STRL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). STRL was in 14 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with STRL holdings at the end of the previous quarter.

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

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the key hedge fund action encompassing Sterling Construction Company, Inc. (NASDAQ:STRL).

Hedge fund activity in Sterling Construction Company, Inc. (NASDAQ:STRL)

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in STRL 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, Renaissance Technologies was the largest shareholder of Sterling Construction Company, Inc. (NASDAQ:STRL), with a stake worth $19.8 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $4.6 million. Intrinsic Edge Capital, Diametric Capital, and Two Sigma Advisors 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 Diametric Capital allocated the biggest weight to Sterling Construction Company, Inc. (NASDAQ:STRL), around 1.94% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to STRL.

Judging by the fact that Sterling Construction Company, Inc. (NASDAQ:STRL) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest stake of the 750 funds tracked by Insider Monkey, worth close to $1.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund cut about $0.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sterling Construction Company, Inc. (NASDAQ:STRL) but similarly valued. We will take a look at Mersana Therapeutics, Inc. (NASDAQ:MRSN), Aurora Mobile Limited (NASDAQ:JG), IMARA Inc. (NASDAQ:IMRA), and Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI). All of these stocks’ market caps are closest to STRL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MRSN 17 82654 2
JG 1 114 -1
IMRA 8 87057 8
SPPI 8 8908 -5
Average 8.5 44683 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $34 million in STRL’s case. Mersana Therapeutics, Inc. (NASDAQ:MRSN) is the most popular stock in this table. On the other hand Aurora Mobile Limited (NASDAQ:JG) is the least popular one with only 1 bullish hedge fund positions. Sterling Construction Company, Inc. (NASDAQ:STRL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately STRL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on STRL were disappointed as the stock returned 4.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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