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Is AWI A Good Stock To Buy According To Hedge Funds?

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Reymerlyn Martin
·6 min read
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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Armstrong World Industries, Inc. (NYSE:AWI), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is AWI a good stock to buy? Armstrong World Industries, Inc. (NYSE:AWI) was in 30 hedge funds' portfolios at the end of September. The all time high for this statistic is 37. AWI has experienced a decrease in hedge fund interest of late. There were 34 hedge funds in our database with AWI holdings at the end of June. Our calculations also showed that AWI isn't among the 30 most popular stocks among hedge funds (click for Q3 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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.

Jeffrey Gates of Gates Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to take a look at the key hedge fund action surrounding Armstrong World Industries, Inc. (NYSE:AWI).

Do Hedge Funds Think AWI Is A Good Stock To Buy Now?

At Q3's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AWI over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Jeffrey Gates's Gates Capital Management has the most valuable position in Armstrong World Industries, Inc. (NYSE:AWI), worth close to $93.8 million, accounting for 4.1% of its total 13F portfolio. The second largest stake is held by Cantillon Capital Management, managed by William von Mueffling, which holds a $87.3 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Richard Merage's MIG Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position MIG Capital allocated the biggest weight to Armstrong World Industries, Inc. (NYSE:AWI), around 4.75% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, earmarking 4.08 percent of its 13F equity portfolio to AWI.

Judging by the fact that Armstrong World Industries, Inc. (NYSE:AWI) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers who sold off their positions entirely heading into Q4. Intriguingly, Phill Gross and Robert Atchinson's Adage Capital Management cut the largest investment of the 750 funds tracked by Insider Monkey, worth close to $4.9 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $2.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks similar to Armstrong World Industries, Inc. (NYSE:AWI). These stocks are Seaboard Corporation (NYSE:SEB), PNM Resources, Inc. (NYSE:PNM), SelectQuote, Inc. (NYSE:SLQT), Schrodinger, Inc. (NASDAQ:SDGR), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), Targa Resources Corp (NYSE:TRGP), and AerCap Holdings N.V. (NYSE:AER). This group of stocks' market values match AWI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SEB,16,120834,2 PNM,23,385999,-2 SLQT,14,217874,-15 SDGR,24,402321,9 RETA,25,249642,-9 TRGP,30,295180,-1 AER,38,753690,8 Average,24.3,346506,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $352 million in AWI's case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand SelectQuote, Inc. (NYSE:SLQT) is the least popular one with only 14 bullish hedge fund positions. Armstrong World Industries, Inc. (NYSE:AWI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AWI is 58.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on AWI as the stock returned 12.1% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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