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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Graphic Packaging Holding Company (NYSE:GPK) to find out whether there were any major changes in hedge funds' views.
Is GPK stock a buy? Graphic Packaging Holding Company (NYSE:GPK) was in 26 hedge funds' portfolios at the end of December. The all time high for this statistic is 44. GPK has experienced a decrease in enthusiasm from smart money lately. There were 30 hedge funds in our database with GPK holdings at the end of September. Our calculations also showed that GPK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Ricky Sandler of Eminence Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Now we're going to take a peek at the fresh hedge fund action encompassing Graphic Packaging Holding Company (NYSE:GPK).
Do Hedge Funds Think GPK Is A Good Stock To Buy Now?
At fourth quarter's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GPK over the last 22 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Waratah Capital Advisors held the most valuable stake in Graphic Packaging Holding Company (NYSE:GPK), which was worth $60.3 million at the end of the fourth quarter. On the second spot was Eminence Capital which amassed $59.8 million worth of shares. D E Shaw, Citadel Investment Group, and Marshall Wace LLP 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 12th Street Asset Management allocated the biggest weight to Graphic Packaging Holding Company (NYSE:GPK), around 6.27% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, designating 4.15 percent of its 13F equity portfolio to GPK.
Judging by the fact that Graphic Packaging Holding Company (NYSE:GPK) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there exists a select few funds that slashed their full holdings by the end of the fourth quarter. At the top of the heap, David Brown's Hawk Ridge Management cut the largest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $4.6 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also sold off its stock, about $3.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds by the end of the fourth quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Graphic Packaging Holding Company (NYSE:GPK) but similarly valued. These stocks are China Biologic Products Holdings Inc (NASDAQ:CBPO), Qurate Retail, Inc. (NASDAQ:QRTEA), WPX Energy Inc (NYSE:WPX), JetBlue Airways Corporation (NASDAQ:JBLU), Kinsale Capital Group, Inc. (NASDAQ:KNSL), Colfax Corporation (NYSE:CFX), and Immunovant, Inc. (NASDAQ:IMVT). This group of stocks' market valuations resemble GPK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBPO,16,895769,-2 QRTEA,36,831569,-5 WPX,35,341766,6 JBLU,29,344811,6 KNSL,17,95292,1 CFX,36,824290,-9 IMVT,36,578066,7 Average,29.3,558795,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $559 million. That figure was $375 million in GPK's case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand China Biologic Products Holdings Inc (NASDAQ:CBPO) is the least popular one with only 16 bullish hedge fund positions. Graphic Packaging Holding Company (NYSE:GPK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GPK is 43.7. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately GPK wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); GPK investors were disappointed as the stock returned 9% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.