How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Installed Building Products Inc (NYSE:IBP) and determine whether hedge funds had an edge regarding this stock.
Is Installed Building Products Inc (NYSE:IBP) a bargain? The smart money was turning less bullish. The number of bullish hedge fund positions were cut by 3 in recent months. Our calculations also showed that IBP 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.
According to most shareholders, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are over 8000 funds trading today, Our researchers hone in on the leaders of this group, around 850 funds. These money managers shepherd the majority of all hedge funds' total capital, and by following their best stock picks, Insider Monkey has uncovered a number of investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let's take a glance at the latest hedge fund action encompassing Installed Building Products Inc (NYSE:IBP).
How are hedge funds trading Installed Building Products Inc (NYSE:IBP)?
At Q1's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in IBP over the last 18 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, GMT Capital, managed by Thomas E. Claugus, holds the most valuable position in Installed Building Products Inc (NYSE:IBP). GMT Capital has a $18.3 million position in the stock, comprising 1% of its 13F portfolio. Coming in second is David Brown of Hawk Ridge Management, with a $13.5 million position; 2.3% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism contain Ken Grossman and Glen Schneider's SG Capital Management, Richard Driehaus's Driehaus Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position SG Capital Management allocated the biggest weight to Installed Building Products Inc (NYSE:IBP), around 4.43% of its 13F portfolio. Blue Grotto Capital is also relatively very bullish on the stock, earmarking 3.51 percent of its 13F equity portfolio to IBP.
Judging by the fact that Installed Building Products Inc (NYSE:IBP) has witnessed bearish sentiment from hedge fund managers, we can see that there lies a certain "tier" of funds who sold off their entire stakes in the first quarter. Intriguingly, Zachary Sternberg and Benjamin Stein's Spruce House Investment Management cut the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $27.7 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $2.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds in the first quarter.
Let's check out hedge fund activity in other stocks similar to Installed Building Products Inc (NYSE:IBP). These stocks are Essential Properties Realty Trust, Inc. (NYSE:EPRT), Global Net Lease, Inc. (NYSE:GNL), Regenxbio Inc (NASDAQ:RGNX), and Veracyte Inc (NASDAQ:VCYT). This group of stocks' market valuations are similar to IBP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPRT,8,11280,-1 GNL,7,24660,-3 RGNX,19,185637,0 VCYT,12,58406,-2 Average,11.5,69996,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $86 million in IBP's case. Regenxbio Inc (NASDAQ:RGNX) is the most popular stock in this table. On the other hand Global Net Lease, Inc. (NYSE:GNL) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Installed Building Products Inc (NYSE:IBP) 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on IBP as the stock returned 102.2% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.