Were Hedge Funds Right About Summit Materials Inc (SUM)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Summit Materials Inc (NYSE:SUM) based on that data and determine whether they were really smart about the stock.

Summit Materials Inc (NYSE:SUM) has experienced a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that SUM 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 21st century investor’s toolkit there are a lot of metrics stock traders have at their disposal to value publicly traded companies. A duo of the less utilized metrics are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best investment managers can outpace their index-focused peers by a superb amount (see the details here).

Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

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 let’s review the key hedge fund action encompassing Summit Materials Inc (NYSE:SUM).

How have hedgies been trading Summit Materials Inc (NYSE:SUM)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in SUM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Adage Capital Management was the largest shareholder of Summit Materials Inc (NYSE:SUM), with a stake worth $63.5 million reported as of the end of September. Trailing Adage Capital Management was GMT Capital, which amassed a stake valued at $46.5 million. Citadel Investment Group, Wallace R. Weitz & Co., and Millennium 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 Red Cedar Management allocated the biggest weight to Summit Materials Inc (NYSE:SUM), around 4.99% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, dishing out 4.56 percent of its 13F equity portfolio to SUM.

Seeing as Summit Materials Inc (NYSE:SUM) has witnessed declining sentiment from the smart money, it’s easy to see that there exists a select few fund managers who sold off their full holdings heading into Q4. Intriguingly, Alexander Mitchell’s Scopus Asset Management dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $34.9 million in stock, and Principal Global Investors’s Columbus Circle Investors was right behind this move, as the fund cut about $6.1 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 8 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Summit Materials Inc (NYSE:SUM). We will take a look at Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), Tower Semiconductor Ltd. (NASDAQ:TSEM), Xencor Inc (NASDAQ:XNCR), and Micro Focus Intl PLC (NYSE:MFGP). This group of stocks’ market valuations resemble SUM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IBA 3 28755 0
TSEM 11 272127 -5
XNCR 13 162286 -3
MFGP 9 13639 -2
Average 9 119202 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $248 million in SUM’s case. Xencor Inc (NASDAQ:XNCR) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Summit Materials Inc (NYSE:SUM) is more popular among hedge funds. 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 still beat the market by 15.5 percentage points. Unfortunately SUM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SUM were disappointed as the stock returned 7.2% 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.