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Should You Avoid The Gorman-Rupp Company (GRC)?

In this article we will take a look at whether hedge funds think The Gorman-Rupp Company (NYSE:GRC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

The Gorman-Rupp Company (NYSE:GRC) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. Our calculations also showed that GRC 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).

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. 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. With all of this in mind let’s review the latest hedge fund action regarding The Gorman-Rupp Company (NYSE:GRC).

What have hedge funds been doing with The Gorman-Rupp Company (NYSE:GRC)?

At Q1’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GRC over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, GAMCO Investors was the largest shareholder of The Gorman-Rupp Company (NYSE:GRC), with a stake worth $18 million reported as of the end of September. Trailing GAMCO Investors was Renaissance Technologies, which amassed a stake valued at $9.9 million. Royce & Associates, Millennium Management, and AQR Capital Management 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 Zebra Capital Management allocated the biggest weight to The Gorman-Rupp Company (NYSE:GRC), around 0.35% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.21 percent of its 13F equity portfolio to GRC.

Judging by the fact that The Gorman-Rupp Company (NYSE:GRC) has experienced falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that slashed their positions entirely in the first quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of all the hedgies monitored by Insider Monkey, worth an estimated $0.8 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund cut about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to The Gorman-Rupp Company (NYSE:GRC). These stocks are Group 1 Automotive, Inc. (NYSE:GPI), Bright Scholar Education Holdings Limited (NYSE:BEDU), Alexander & Baldwin Inc (NYSE:ALEX), and Dycom Industries, Inc. (NYSE:DY). This group of stocks’ market values are closest to GRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GPI 15 96849 -7
BEDU 9 76688 1
ALEX 13 28698 -5
DY 17 82687 -1
Average 13.5 71231 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $42 million in GRC’s case. Dycom Industries, Inc. (NYSE:DY) is the most popular stock in this table. On the other hand Bright Scholar Education Holdings Limited (NYSE:BEDU) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks The Gorman-Rupp Company (NYSE:GRC) is even less popular than BEDU. Hedge funds dodged a bullet by taking a bearish stance towards GRC. 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 12.2% in 2020 through June 17th but managed to beat the market by 14.8 percentage points. Unfortunately GRC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); GRC investors were disappointed as the stock returned -2.9% during the second quarter (through June 17th) 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.