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Rollins, Inc. (ROL): Hedge Funds Cashing Out

In this article you are going to find out whether hedge funds think Rollins, Inc. (NYSE:ROL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Rollins, Inc. (NYSE:ROL) a buy, sell, or hold? Prominent investors are turning less bullish. The number of bullish hedge fund bets fell by 9 recently. Our calculations also showed that ROL 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). ROL was in 25 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with ROL 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 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 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 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.

TUDOR INVESTMENT CORPPaul Tudor Jones

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the fresh hedge fund action surrounding Rollins, Inc. (NYSE:ROL).

How are hedge funds trading Rollins, Inc. (NYSE:ROL)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ROL over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ROL A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Robert Joseph Caruso’s Select Equity Group has the largest position in Rollins, Inc. (NYSE:ROL), worth close to $197.4 million, corresponding to 1.4% of its total 13F portfolio. The second most bullish fund manager is GAMCO Investors, managed by Mario Gabelli, which holds a $85.1 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Cliff Asness’s AQR Capital Management, Tom Gayner’s Markel Gayner Asset Management and Tim Curro’s Value Holdings LP. In terms of the portfolio weights assigned to each position Value Holdings LP allocated the biggest weight to Rollins, Inc. (NYSE:ROL), around 11.39% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, dishing out 5.62 percent of its 13F equity portfolio to ROL.

Due to the fact that Rollins, Inc. (NYSE:ROL) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few money managers that slashed their positions entirely by the end of the first quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners cut the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $7.3 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dumped about $6.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Rollins, Inc. (NYSE:ROL). We will take a look at Alliant Energy Corporation (NYSE:LNT), Martin Marietta Materials, Inc. (NYSE:MLM), Mid America Apartment Communities Inc (NYSE:MAA), and Xylem Inc (NYSE:XYL). This group of stocks’ market values match ROL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LNT 30 602098 2
MLM 44 1436776 -8
MAA 26 244541 2
XYL 27 428104 6
Average 31.75 677880 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $678 million. That figure was $448 million in ROL’s case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Rollins, Inc. (NYSE:ROL) is even less popular than MAA. Hedge funds dodged a bullet by taking a bearish stance towards ROL. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately ROL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ROL investors were disappointed as the stock returned 20.5% during the second quarter (through June 10th) 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 most of these stocks already outperformed the market so far in 2020.

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