Should You Avoid Holdings Inc (ALRM)?

In this article you are going to find out whether hedge funds think Holdings Inc (NASDAQ:ALRM) 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 Holdings Inc (NASDAQ:ALRM) a buy here? The smart money is in a pessimistic mood. The number of long hedge fund bets were cut by 5 recently. Our calculations also showed that ALRM 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). ALRM was in 23 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with ALRM holdings at the end of the previous quarter.

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

In the financial world there are tons of tools investors put to use to appraise publicly traded companies. A duo of the less known tools are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the top investment managers can trounce the broader indices by a superb amount (see the details here).

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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 we’re going to take a look at the new hedge fund action surrounding Holdings Inc (NASDAQ:ALRM).

What does smart money think about Holdings Inc (NASDAQ:ALRM)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ALRM over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Akre Capital Management held the most valuable stake in Holdings Inc (NASDAQ:ALRM), which was worth $68.9 million at the end of the third quarter. On the second spot was Bares Capital Management which amassed $39.4 million worth of shares. Fisher Asset Management, Motley Fool Asset Management, and Intrinsic Edge 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 Red Cedar Management allocated the biggest weight to Holdings Inc (NASDAQ:ALRM), around 3.87% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, dishing out 1.42 percent of its 13F equity portfolio to ALRM.

Judging by the fact that Holdings Inc (NASDAQ:ALRM) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of fund managers that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that William C. Martin’s Raging Capital Management sold off the biggest stake of the 750 funds monitored by Insider Monkey, totaling about $33.3 million in stock. Bruce Emery’s fund, Greenvale Capital, also said goodbye to its stock, about $32.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Holdings Inc (NASDAQ:ALRM) but similarly valued. These stocks are Alector, Inc. (NASDAQ:ALEC), EPR Properties (NYSE:EPR), Wyndham Destinations, Inc. (NYSE:WYND), and Fulton Financial Corp (NASDAQ:FULT). This group of stocks’ market valuations match ALRM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALEC 15 416696 2
EPR 23 149422 -1
WYND 25 200324 -3
FULT 14 12965 0
Average 19.25 194852 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $153 million in ALRM’s case. Wyndham Destinations, Inc. (NYSE:WYND) is the most popular stock in this table. On the other hand Fulton Financial Corp (NASDAQ:FULT) is the least popular one with only 14 bullish hedge fund positions. Holdings Inc (NASDAQ:ALRM) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on ALRM as the stock returned 55% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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