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Did Hedge Funds Drop The Ball On Masonite International Corp (DOOR) ?

Asma UL Husna

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Masonite International Corp (NYSE:DOOR).

Is Masonite International Corp (NYSE:DOOR) a bargain? Money managers are in a bearish mood. The number of bullish hedge fund positions dropped by 2 recently. Our calculations also showed that DOOR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 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 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.

[caption id="attachment_690802" align="aligncenter" width="473"] Kevin Oram of Praesidium Investment Management[/caption]

Kevin Oram Praesidium Investment Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the fresh hedge fund action regarding Masonite International Corp (NYSE:DOOR).

What have hedge funds been doing with Masonite International Corp (NYSE:DOOR)?

At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DOOR over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Praesidium Investment Management, managed by Kevin Oram and Peter Uddo, holds the most valuable position in Masonite International Corp (NYSE:DOOR). Praesidium Investment Management has a $111.4 million position in the stock, comprising 7.3% of its 13F portfolio. On Praesidium Investment Management's heels is Richard S. Pzena of Pzena Investment Management, with a $58.6 million position; 0.3% of its 13F portfolio is allocated to the company. Some other peers with similar optimism include Will Cook's Sunriver Management, Jonathan Auerbach's Hound Partners and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Praesidium Investment Management allocated the biggest weight to Masonite International Corp (NYSE:DOOR), around 7.31% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, dishing out 6.72 percent of its 13F equity portfolio to DOOR.

Judging by the fact that Masonite International Corp (NYSE:DOOR) has faced bearish sentiment from the smart money, we can see that there were a few money managers that elected to cut their positions entirely in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, totaling about $5 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund said goodbye to about $0.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Masonite International Corp (NYSE:DOOR) but similarly valued. These stocks are Tanger Factory Outlet Centers Inc. (NYSE:SKT), AAR Corp. (NYSE:AIR), Comstock Resources Inc (NYSE:CRK), and National Research Corporation (NASDAQ:NRC). This group of stocks' market caps resemble DOOR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKT,18,80072,4 AIR,18,138846,-4 CRK,5,3783,1 NRC,9,49867,0 Average,12.5,68142,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $286 million in DOOR's case. Tanger Factory Outlet Centers Inc. (NYSE:SKT) is the most popular stock in this table. On the other hand Comstock Resources Inc (NYSE:CRK) is the least popular one with only 5 bullish hedge fund positions. Masonite International Corp (NYSE:DOOR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DOOR as the stock returned 23.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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