At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not Eagle Materials, Inc. (NYSE:EXP) makes for a good investment right now.
Is Eagle Materials, Inc. (NYSE:EXP) a bargain? The best stock pickers are in an optimistic mood. The number of long hedge fund positions rose by 7 in recent months. Our calculations also showed that EXP isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the key hedge fund action regarding Eagle Materials, Inc. (NYSE:EXP).
How have hedgies been trading Eagle Materials, Inc. (NYSE:EXP)?
At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the first quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in EXP a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Sachem Head Capital, managed by Scott Ferguson, holds the biggest position in Eagle Materials, Inc. (NYSE:EXP). Sachem Head Capital has a $340.2 million position in the stock, comprising 35.9% of its 13F portfolio. Sitting at the No. 2 spot is Empyrean Capital Partners, managed by Michael A. Price and Amos Meron, which holds a $93.8 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish include John Khoury's Long Pond Capital, Lee Ainslie's Maverick Capital and Richard Scott Greeder's Broad Bay Capital.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Jet Capital Investors, managed by Matthew Mark, initiated the most outsized call position in Eagle Materials, Inc. (NYSE:EXP). Jet Capital Investors had $22.2 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $9.1 million position during the quarter. The other funds with brand new EXP positions are Sander Gerber's Hudson Bay Capital Management, Frederick DiSanto's Ancora Advisors, and Matthew Mark's Jet Capital Investors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Eagle Materials, Inc. (NYSE:EXP) but similarly valued. These stocks are Enstar Group Ltd. (NASDAQ:ESGR), frontdoor, inc. (NASDAQ:FTDR), Texas Roadhouse Inc (NASDAQ:TXRH), and Axon Enterprise, Inc. (NASDAQ:AAXN). This group of stocks' market valuations match EXP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESGR,10,302329,-1 FTDR,40,739174,6 TXRH,23,257119,-2 AAXN,16,250261,-3 Average,22.25,387221,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $387 million. That figure was $682 million in EXP's case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 10 bullish hedge fund positions. Eagle Materials, Inc. (NYSE:EXP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EXP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EXP were disappointed as the stock returned -2.9% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.