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Did Hedge Funds Drop The Ball On Argan, Inc. (AGX) ?

Nina Todic

Is Argan, Inc. (NYSE:AGX) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Is Argan, Inc. (NYSE:AGX) a buy here? The smart money is getting less bullish. The number of bullish hedge fund bets shrunk by 4 recently. Our calculations also showed that agx isn't among the 30 most popular stocks among hedge funds. AGX was in 13 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 17 hedge funds in our database with AGX holdings at the end of the previous quarter.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Prem Watsa, Fairfax Financial Holdings

Let's review the recent hedge fund action surrounding Argan, Inc. (NYSE:AGX).

What have hedge funds been doing with Argan, Inc. (NYSE:AGX)?

At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards AGX over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

No of Hedge Funds with AGX Positions

More specifically, Renaissance Technologies was the largest shareholder of Argan, Inc. (NYSE:AGX), with a stake worth $29 million reported as of the end of December. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $24.2 million. Hawk Ridge Management, Fairfax Financial Holdings, and Welch Capital Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Argan, Inc. (NYSE:AGX) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of money managers that slashed their full holdings heading into Q3. It's worth mentioning that Cliff Asness's AQR Capital Management dropped the biggest investment of the 700 funds followed by Insider Monkey, comprising an estimated $4.7 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund sold off about $0.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Argan, Inc. (NYSE:AGX). We will take a look at Peoples Bancorp Inc. (NASDAQ:PEBO), Sonic Automotive Inc (NYSE:SAH), Upland Software Inc (NASDAQ:UPLD), and Johnson Outdoors Inc. (NASDAQ:JOUT). This group of stocks' market caps resemble AGX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEBO,8,26504,-2 SAH,10,10221,1 UPLD,25,105107,5 JOUT,12,57312,-1 Average,13.75,49786,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $85 million in AGX's case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand Peoples Bancorp Inc. (NASDAQ:PEBO) is the least popular one with only 8 bullish hedge fund positions. Argan, Inc. (NYSE:AGX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on AGX as the stock returned 32.1% and outperformed the market by an even larger margin.

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

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