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Should You Buy Eagle Materials, Inc. (EXP)?

Reymerlyn Martin

Is Eagle Materials, Inc. (NYSE:EXP) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to find the latest market-moving information.

Eagle Materials, Inc. (NYSE:EXP) shareholders have witnessed an increase in activity from the world's largest hedge funds lately. Our calculations also showed that EXP isn't among the 30 most popular stocks among hedge funds.

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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Phill Gross, Adage Capital Management

We're going to analyze the key hedge fund action encompassing Eagle Materials, Inc. (NYSE:EXP).

How are hedge funds trading Eagle Materials, Inc. (NYSE:EXP)?

Heading into the fourth quarter of 2018, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in EXP at the beginning of this year. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

EXP_dec2018

More specifically, Adage Capital Management was the largest shareholder of Eagle Materials, Inc. (NYSE:EXP), with a stake worth $167.7 million reported as of the end of September. Trailing Adage Capital Management was Gates Capital Management, which amassed a stake valued at $129.3 million. Citadel Investment Group, Melvin Capital Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, some big names have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, created the largest position in Eagle Materials, Inc. (NYSE:EXP). Renaissance Technologies had $30.6 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $14.8 million position during the quarter. The following funds were also among the new EXP investors: John Overdeck and David Siegel's Two Sigma Advisors, Sara Nainzadeh's Centenus Global Management, and Matthew Hulsizer's PEAK6 Capital Management.

Let's go over hedge fund activity in other stocks similar to Eagle Materials, Inc. (NYSE:EXP). We will take a look at New Jersey Resources Corp (NYSE:NJR), Portland General Electric Company (NYSE:POR), Hancock Whitney Corporation (NASDAQ:HWC), and The Wendy's Company (NASDAQ:WEN). This group of stocks' market caps resemble EXP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NJR,12,65883,-2 POR,16,269447,0 HWC,24,192263,2 WEN,27,1221248,3 Average,19.75,437210,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $437 million. That figure was $816 million in EXP's case. The Wendy's Company (NASDAQ:WEN) is the most popular stock in this table. On the other hand New Jersey Resources Corp (NYSE:NJR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Eagle Materials, Inc. (NYSE:EXP) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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