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In this article we are going to use hedge fund sentiment as a tool and determine whether Graham Corporation (NYSE:GHM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is GHM a good stock to buy now? Graham Corporation (NYSE:GHM) has experienced an increase in activity from the world's largest hedge funds in recent months. Graham Corporation (NYSE:GHM) was in 9 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 10. Our calculations also showed that GHM 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Mario Gabelli of GAMCO Investors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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 we're going to go over the fresh hedge fund action regarding Graham Corporation (NYSE:GHM).
Do Hedge Funds Think GHM Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards GHM over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Graham Corporation (NYSE:GHM), with a stake worth $5.9 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $5.3 million. Bronte Capital, GAMCO Investors, and Arrowstreet Capital 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 Bronte Capital allocated the biggest weight to Graham Corporation (NYSE:GHM), around 0.68% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to GHM.
Now, some big names have jumped into Graham Corporation (NYSE:GHM) headfirst. Bronte Capital, managed by John Hempton, created the biggest position in Graham Corporation (NYSE:GHM). Bronte Capital had $3.9 million invested in the company at the end of the quarter. Mario Gabelli's GAMCO Investors also made a $2.3 million investment in the stock during the quarter. The only other fund with a brand new GHM position is Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's now review hedge fund activity in other stocks similar to Graham Corporation (NYSE:GHM). These stocks are Resonant Inc. (NASDAQ:RESN), The Community Financial Corp (NASDAQ:TCFC), PlayAGS, Inc. (NYSE:AGS), Diana Shipping Inc. (NYSE:DSX), vTv Therapeutics Inc (NASDAQ:VTVT), Olympic Steel, Inc. (NASDAQ:ZEUS), and Applied Genetic Technologies Corp (NASDAQ:AGTC). This group of stocks' market valuations are similar to GHM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RESN,5,6733,0 TCFC,3,15975,0 AGS,11,21646,-2 DSX,7,19056,0 VTVT,4,2795,1 ZEUS,5,3338,-1 AGTC,11,25666,3 Average,6.6,13601,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.6 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $19 million in GHM's case. PlayAGS, Inc. (NYSE:AGS) is the most popular stock in this table. On the other hand The Community Financial Corp (NASDAQ:TCFC) is the least popular one with only 3 bullish hedge fund positions. Graham Corporation (NYSE:GHM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GHM is 70.5. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on GHM as the stock returned 27% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.