In this article we will take a look at whether hedge funds think Eagle Materials, Inc. (NYSE:EXP) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Eagle Materials, Inc. (NYSE:EXP) a bargain? Hedge funds are in a pessimistic mood. The number of bullish hedge fund positions fell by 4 in recent months. Our calculations also showed that EXP isn't among the 30 most popular stocks among hedge funds (click for Q1 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 51 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to view the recent hedge fund action regarding Eagle Materials, Inc. (NYSE:EXP).
Hedge fund activity in Eagle Materials, Inc. (NYSE:EXP)
At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in EXP 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.
The largest stake in Eagle Materials, Inc. (NYSE:EXP) was held by Sachem Head Capital, which reported holding $183.7 million worth of stock at the end of September. It was followed by Broad Bay Capital with a $32.9 million position. Other investors bullish on the company included Empyrean Capital Partners, Sunriver Management, and Third Avenue Management. In terms of the portfolio weights assigned to each position Sachem Head Capital allocated the biggest weight to Eagle Materials, Inc. (NYSE:EXP), around 17.85% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, earmarking 9.04 percent of its 13F equity portfolio to EXP.
Seeing as Eagle Materials, Inc. (NYSE:EXP) has experienced a decline in interest from hedge fund managers, it's safe to say that there were a few hedge funds that decided to sell off their entire stakes heading into Q4. Intriguingly, Israel Englander's Millennium Management dumped the largest position of the 750 funds monitored by Insider Monkey, totaling an estimated $21.3 million in stock, and Phill Gross and Robert Atchinson's Adage Capital Management was right behind this move, as the fund said goodbye to about $13.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Eagle Materials, Inc. (NYSE:EXP) but similarly valued. We will take a look at Agios Pharmaceuticals Inc (NASDAQ:AGIO), Euronav NV (NYSE:EURN), Allogene Therapeutics, Inc. (NASDAQ:ALLO), and NovaGold Resources Inc. (NYSE:NG). All of these stocks' market caps are similar to EXP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGIO,23,304362,0 EURN,33,236366,5 ALLO,12,101735,0 NG,19,297032,3 Average,21.75,234874,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $345 million in EXP's case. Euronav NV (NYSE:EURN) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Eagle Materials, Inc. (NYSE:EXP) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately EXP wasn't nearly as popular as these 10 stocks and hedge funds that were betting on EXP were disappointed as the stock returned 14.5% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.