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Is EXP A Good Stock To Buy According To Hedge Funds?

Abigail Fisher
·6 min read

In this article we will take a look at whether hedge funds think Eagle Materials, Inc. (NYSE:EXP) is 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, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is EXP a good stock to buy? The smart money was in a bearish mood. The number of long hedge fund positions fell by 10 recently. Eagle Materials, Inc. (NYSE:EXP) was in 31 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 41. Our calculations also showed that EXP isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

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 S&P 500 ETFs by 66 percentage points since March 2017 (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.

Martin Whitman Third Avenue Management Marty Whitman
Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. With all of this in mind let's check out the recent hedge fund action surrounding Eagle Materials, Inc. (NYSE:EXP).

Do Hedge Funds Think EXP Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the second quarter of 2020. On the other hand, there were a total of 40 hedge funds with a bullish position in EXP a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Eagle Materials, Inc. (NYSE:EXP) was held by Sachem Head Capital, which reported holding $231.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $55.7 million position. Other investors bullish on the company included Empyrean Capital Partners, Sunriver Management, and Third Avenue Management. In terms of the portfolio weights assigned to each position Sachem Head Capital allocated the biggest weight to Eagle Materials, Inc. (NYSE:EXP), around 14.04% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, dishing out 5.64 percent of its 13F equity portfolio to EXP.

Seeing as Eagle Materials, Inc. (NYSE:EXP) has faced falling interest from hedge fund managers, logic holds that there was a specific group of hedge funds that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Richard Scott Greeder's Broad Bay Capital dumped the largest position of the "upper crust" of funds monitored by Insider Monkey, valued at close to $21.7 million in stock, and Wayne Cooperman's Cobalt Capital Management was right behind this move, as the fund said goodbye to about $12.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 10 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Eagle Materials, Inc. (NYSE:EXP) but similarly valued. These stocks are Grocery Outlet Holding Corp. (NASDAQ:GO), Halozyme Therapeutics, Inc. (NASDAQ:HALO), Rexnord Corp (NYSE:RXN), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), 1Life Healthcare, Inc. (NASDAQ:ONEM), JBG SMITH Properties (NYSE:JBGS), and UniFirst Corp (NYSE:UNF). This group of stocks' market values resemble EXP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GO,18,119079,-1 HALO,26,206784,0 RXN,24,319104,-3 SAIL,29,765976,8 ONEM,22,378001,2 JBGS,17,268888,-8 UNF,19,95832,0 Average,22.1,307666,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $473 million in EXP's case. SailPoint Technologies Holdings, Inc. (NYSE:SAIL) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Eagle Materials, Inc. (NYSE:EXP) is more popular among hedge funds. Our overall hedge fund sentiment score for EXP is 67.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on EXP as the stock returned 15.9% since the end of September (through 12/18) 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.

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