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In this article we are going to use hedge fund sentiment as a tool and determine whether Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) 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 GLDD a good stock to buy now? Investors who are in the know were getting more optimistic. The number of long hedge fund positions inched up by 3 in recent months. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) was in 20 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 25. Our calculations also showed that GLDD 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). There were 17 hedge funds in our database with GLDD positions at the end of the second quarter.
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.
Michael Gelband of ExodusPoint Capital
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. Keeping this in mind we're going to take a look at the fresh hedge fund action encompassing Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD).
Do Hedge Funds Think GLDD Is A Good Stock To Buy Now?
At third quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the second quarter of 2020. On the other hand, there were a total of 25 hedge funds with a bullish position in GLDD 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.
More specifically, Renaissance Technologies was the largest shareholder of Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), with a stake worth $23.5 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $15 million. Royce & Associates, Minerva Advisors, and Encompass Capital Advisors 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 Minerva Advisors allocated the biggest weight to Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), around 6.78% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, dishing out 4.08 percent of its 13F equity portfolio to GLDD.
Consequently, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD). Arrowstreet Capital had $3.7 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $0.8 million position during the quarter. The following funds were also among the new GLDD investors: Alec Litowitz and Ross Laser's Magnetar Capital, Thomas Bailard's Bailard Inc, and Matthew Hulsizer's PEAK6 Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) but similarly valued. These stocks are Tilray, Inc. (NASDAQ:TLRY), Saul Centers Inc (NYSE:BFS), ARMOUR Residential REIT, Inc. (NYSE:ARR), Ready Capital Corporation (NYSE:RC), Inozyme Pharma, Inc. (NASDAQ:INZY), Cellcom Israel Ltd. (NYSE:CEL), and Knoll Inc (NYSE:KNL). This group of stocks' market valuations match GLDD's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TLRY,6,18056,-5 BFS,7,23157,0 ARR,11,21680,0 RC,10,27304,0 INZY,13,154774,13 CEL,2,19824,0 KNL,7,4649,0 Average,8,38492,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $96 million in GLDD's case. Inozyme Pharma, Inc. (NASDAQ:INZY) is the most popular stock in this table. On the other hand Cellcom Israel Ltd. (NYSE:CEL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) is more popular among hedge funds. Our overall hedge fund sentiment score for GLDD is 82. 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 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on GLDD as the stock returned 19.3% since the end of September (through 12/14) 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.