Should I Buy RR Donnelley & Sons Company (RRD)?

In this article we are going to use hedge fund sentiment as a tool and determine whether RR Donnelley & Sons Company (NYSE:RRD) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is RR Donnelley & Sons Company (NYSE:RRD) a marvelous investment today? Money managers were buying. The number of long hedge fund positions advanced by 10 in recent months. RR Donnelley & Sons Company (NYSE:RRD) was in 23 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 27. Our calculations also showed that RRD isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Andy Redleaf Andrew Redleaf Whitebox Advisors

Andy Redleaf of Whitebox Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s take a peek at the key hedge fund action encompassing RR Donnelley & Sons Company (NYSE:RRD).

Do Hedge Funds Think RRD Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 77% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RRD over the last 23 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in RR Donnelley & Sons Company (NYSE:RRD) was held by HG Vora Capital Management, which reported holding $17.3 million worth of stock at the end of December. It was followed by Saba Capital with a $13.3 million position. Other investors bullish on the company included Whitebox Advisors, Millennium Management, and D E Shaw. In terms of the portfolio weights assigned to each position Solas Capital Management allocated the biggest weight to RR Donnelley & Sons Company (NYSE:RRD), around 3.41% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, earmarking 0.92 percent of its 13F equity portfolio to RRD.

Consequently, some big names have jumped into RR Donnelley & Sons Company (NYSE:RRD) headfirst. HG Vora Capital Management, managed by Parag Vora, established the largest position in RR Donnelley & Sons Company (NYSE:RRD). HG Vora Capital Management had $17.3 million invested in the company at the end of the quarter. Frederick Tucker Golden’s Solas Capital Management also initiated a $4.1 million position during the quarter. The other funds with brand new RRD positions are Parsa Kiai’s Steamboat Capital Partners, Nick Thakore’s Diametric Capital, and Ken Griffin’s Citadel Investment Group.

Let’s now review hedge fund activity in other stocks similar to RR Donnelley & Sons Company (NYSE:RRD). These stocks are Escalade, Inc. (NASDAQ:ESCA), Bluegreen Vacations Holding Corporation (NYSE:BVH), Trevena Inc (NASDAQ:TRVN), Mayville Engineering Company, Inc. (NYSE:MEC), Immersion Corporation (NASDAQ:IMMR), NavSight Holdings, Inc. (NYSE:NSH), and First Choice Bancorp (NASDAQ:FCBP). This group of stocks’ market caps resemble RRD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESCA 3 10058 -3
BVH 6 29254 0
TRVN 14 8402 7
MEC 3 3530 0
IMMR 20 71443 0
NSH 21 110081 1
FCBP 4 3484 1
Average 10.1 33750 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.1 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $65 million in RRD’s case. NavSight Holdings, Inc. (NYSE:NSH) is the most popular stock in this table. On the other hand Escalade, Inc. (NASDAQ:ESCA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks RR Donnelley & Sons Company (NYSE:RRD) is more popular among hedge funds. Our overall hedge fund sentiment score for RRD is 85.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 23.8% in 2021 through July 16th but still managed to beat the market by 7.7 percentage points. Hedge funds were also right about betting on RRD as the stock returned 50.7% since the end of March (through 7/16) 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.

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