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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Graco Inc. (NYSE:GGG)? The smart money sentiment can provide an answer to this question.
Is GGG a good stock to buy?? Money managers were becoming less confident. The number of long hedge fund bets retreated by 2 recently. Graco Inc. (NYSE:GGG) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 32. Our calculations also showed that GGG 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.
Lee Ainslie of Maverick Capital
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 take a peek at the recent hedge fund action regarding Graco Inc. (NYSE:GGG).
Do Hedge Funds Think GGG Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GGG over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GAMCO Investors held the most valuable stake in Graco Inc. (NYSE:GGG), which was worth $81.8 million at the end of the third quarter. On the second spot was Millennium Management which amassed $28.6 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Jade Capital Advisors allocated the biggest weight to Graco Inc. (NYSE:GGG), around 2.78% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 0.91 percent of its 13F equity portfolio to GGG.
Since Graco Inc. (NYSE:GGG) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers that elected to cut their positions entirely heading into Q4. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest stake of the 750 funds followed by Insider Monkey, comprising about $1.6 million in stock. Brandon Haley's fund, Holocene Advisors, also dumped its stock, about $1.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Graco Inc. (NYSE:GGG). These stocks are IAC/InterActiveCorp (NASDAQ:IAC), United Airlines Holdings Inc (NASDAQ:UAL), Penn National Gaming, Inc (NASDAQ:PENN), Franklin Resources, Inc. (NYSE:BEN), ICON Public Limited Company (NASDAQ:ICLR), Entegris Inc (NASDAQ:ENTG), and Annaly Capital Management, Inc. (NYSE:NLY). This group of stocks' market values are closest to GGG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IAC,72,1612704,12 UAL,40,735205,2 PENN,45,1183254,11 BEN,33,414803,-3 ICLR,24,621133,0 ENTG,25,1061024,-3 NLY,27,337862,6 Average,38,852284,3.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $852 million. That figure was $248 million in GGG's case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand ICON Public Limited Company (NASDAQ:ICLR) is the least popular one with only 24 bullish hedge fund positions. Graco Inc. (NYSE:GGG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GGG is 37.4. 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 gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on GGG as the stock returned 17.2% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.