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2019 Review: Top Hedge Fund Stocks vs. RPM International Inc. (RPM)

Debasis Saha

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about RPM International Inc. (NYSE:RPM) and compare its performance to hedge funds' consensus picks in 2019.

RPM International Inc. (NYSE:RPM) was in 32 hedge funds' portfolios at the end of the third quarter of 2019. RPM shareholders have witnessed an increase in enthusiasm from smart money of late. There were 25 hedge funds in our database with RPM holdings at the end of the previous quarter. Our calculations also showed that RPM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_758429" align="alignnone" width="600"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's go over the key hedge fund action surrounding RPM International Inc. (NYSE:RPM).

How are hedge funds trading RPM International Inc. (NYSE:RPM)?

At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RPM over the last 17 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is RPM A Good Stock To Buy?

Among these funds, Hound Partners held the most valuable stake in RPM International Inc. (NYSE:RPM), which was worth $110.1 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $79.2 million worth of shares. Millennium Management, Samlyn Capital, and Balyasny Asset 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 SAYA Management allocated the biggest weight to RPM International Inc. (NYSE:RPM), around 9.33% of its 13F portfolio. Hound Partners is also relatively very bullish on the stock, dishing out 7 percent of its 13F equity portfolio to RPM.

As aggregate interest increased, key money managers have jumped into RPM International Inc. (NYSE:RPM) headfirst. Moore Global Investments, managed by Louis Bacon, initiated the largest position in RPM International Inc. (NYSE:RPM). Moore Global Investments had $6.5 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also initiated a $3.7 million position during the quarter. The following funds were also among the new RPM investors: Vince Maddi and Shawn Brennan's SIR Capital Management, Paul Marshall and Ian Wace's Marshall Wace, and Matthew Tewksbury's Stevens Capital Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as RPM International Inc. (NYSE:RPM) but similarly valued. We will take a look at Bright Horizons Family Solutions Inc (NYSE:BFAM), Brookfield Property Partners LP (NYSE:BPY), Santander Consumer USA Holdings Inc (NYSE:SC), and HollyFrontier Corporation (NYSE:HFC). This group of stocks' market valuations resemble RPM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BFAM,27,216673,7 BPY,8,32207,2 SC,23,795446,-3 HFC,27,544455,2 Average,21.25,397195,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $397 million. That figure was $410 million in RPM's case. Bright Horizons Family Solutions Inc (NYSE:BFAM) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NYSE:BPY) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks RPM International Inc. (NYSE:RPM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on RPM, though not to the same extent, as the stock returned 31% during the same period and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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