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Were Hedge Funds Right About Souring On Raven Industries, Inc. (RAVN)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtRaven Industries, Inc. (NASDAQ:RAVN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Raven Industries, Inc. (NASDAQ:RAVN) a buy right now? The best stock pickers were turning less bullish. The number of long hedge fund bets shrunk by 2 lately. Our calculations also showed that RAVN 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). RAVN was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with RAVN positions 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 we’re going to check out the recent hedge fund action regarding Raven Industries, Inc. (NASDAQ:RAVN).

Hedge fund activity in Raven Industries, Inc. (NASDAQ:RAVN)

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in RAVN a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is RAVN A Good Stock To Buy?

More specifically, Royce & Associates was the largest shareholder of Raven Industries, Inc. (NASDAQ:RAVN), with a stake worth $45.1 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $11.8 million. Millennium Management, Citadel Investment Group, and D E Shaw 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 Royce & Associates allocated the biggest weight to Raven Industries, Inc. (NASDAQ:RAVN), around 0.61% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.14 percent of its 13F equity portfolio to RAVN.

Judging by the fact that Raven Industries, Inc. (NASDAQ:RAVN) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that decided to sell off their positions entirely by the end of the first quarter. It’s worth mentioning that Roger Ibbotson’s Zebra Capital Management sold off the largest investment of all the hedgies monitored by Insider Monkey, worth about $0.3 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also sold off its stock, about $0.3 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Raven Industries, Inc. (NASDAQ:RAVN). These stocks are Teekay LNG Partners L.P. (NYSE:TGP), Perdoceo Education Corporation (NASDAQ:PRDO), Matthews International Corp (NASDAQ:MATW), and Phreesia, Inc. (NYSE:PHR). This group of stocks’ market caps match RAVN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGP 10 38247 -3
PRDO 23 141084 4
MATW 9 33381 0
PHR 8 51620 -8
Average 12.5 66083 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $73 million in RAVN’s case. Perdoceo Education Corporation (NASDAQ:PRDO) is the most popular stock in this table. On the other hand Phreesia, Inc. (NYSE:PHR) is the least popular one with only 8 bullish hedge fund positions. Raven Industries, Inc. (NASDAQ:RAVN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately RAVN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RAVN investors were disappointed as the stock returned 1.9% during the second quarter 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 in 2020.

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