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Should You Avoid Vulcan Materials Company (VMC)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about Vulcan Materials Company (NYSE:VMC)?

Is Vulcan Materials Company (NYSE:VMC) the right pick for your portfolio? Prominent investors are taking a pessimistic view. The number of bullish hedge fund bets went down by 5 recently. Our calculations also showed that VMC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Armitage Egerton Capital

John Armitage of Egerton Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a peek at the recent hedge fund action surrounding Vulcan Materials Company (NYSE:VMC).

What does smart money think about Vulcan Materials Company (NYSE:VMC)?

At the end of the fourth quarter, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards VMC over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Egerton Capital Limited held the most valuable stake in Vulcan Materials Company (NYSE:VMC), which was worth $550.7 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $156.2 million worth of shares. Palestra Capital Management, Alkeon Capital Management, and Adage 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 Palestra Capital Management allocated the biggest weight to Vulcan Materials Company (NYSE:VMC), around 4.5% of its 13F portfolio. Egerton Capital Limited is also relatively very bullish on the stock, dishing out 3.94 percent of its 13F equity portfolio to VMC.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Capital Growth Management).

Let’s go over hedge fund activity in other stocks similar to Vulcan Materials Company (NYSE:VMC). These stocks are Restaurant Brands International Inc (NYSE:QSR), Freeport-McMoRan Inc. (NYSE:FCX), Ameren Corporation (NYSE:AEE), and Western Digital Corporation (NASDAQ:WDC). This group of stocks’ market caps match VMC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QSR 52 3118805 -7
FCX 55 1663058 14
AEE 31 1678648 -1
WDC 49 869922 9
Average 46.75 1832608 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $1833 million. That figure was $1632 million in VMC’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Ameren Corporation (NYSE:AEE) is the least popular one with only 31 bullish hedge fund positions. Vulcan Materials Company (NYSE:VMC) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately VMC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VMC were disappointed as the stock returned -17.3% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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