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Hedge Funds Are Betting On Graham Corporation (GHM)

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We can judge whether Graham Corporation (NYSE:GHM) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Graham Corporation (NYSE:GHM) undervalued? Money managers are taking a bullish view. The number of long hedge fund positions advanced by 1 in recent months. 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 below for Q2 rankings).

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_673876" align="aligncenter" width="473"]

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's review the key hedge fund action regarding Graham Corporation (NYSE:GHM).

What have hedge funds been doing with Graham Corporation (NYSE:GHM)?

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GHM over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Graham Corporation (NYSE:GHM) was held by Renaissance Technologies, which reported holding $9.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $8.6 million position. Other investors bullish on the company included Emancipation Capital, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Emancipation Capital allocated the biggest weight to Graham Corporation (NYSE:GHM), around 5.41% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to GHM.

As one would reasonably expect, some big names were leading the bulls' herd. Millennium Management, managed by Israel Englander, created the biggest position in Graham Corporation (NYSE:GHM). Millennium Management had $0.2 million invested in the company at the end of the quarter.

Let's also examine hedge fund activity in other stocks similar to Graham Corporation (NYSE:GHM). These stocks are DASAN Zhone Solutions, Inc. (NASDAQ:DZSI), BG Staffing Inc (NYSE:BGSF), First Guaranty Bancshares, Inc. (NASDAQ:FGBI), and First Capital, Inc. (NASDAQ:FCAP). This group of stocks' market values match GHM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DZSI,9,6452,3 BGSF,9,9131,1 FGBI,1,783,0 FCAP,1,434,0 Average,5,4200,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $21 million in GHM's case. DASAN Zhone Solutions, Inc. (NASDAQ:DZSI) is the most popular stock in this table. On the other hand First Guaranty Bancshares, Inc. (NASDAQ:FGBI) is the least popular one with only 1 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 calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on GHM, though not to the same extent, as the stock returned 7.5% during the first two months of the fourth quarter and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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