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Hedge Funds Are Crazy About Summit Materials Inc (SUM)

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We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Summit Materials Inc (NYSE:SUM).

Summit Materials Inc (NYSE:SUM) has seen an increase in support from the world's most elite money managers lately. SUM was in 24 hedge funds' portfolios at the end of the third quarter of 2019. There were 22 hedge funds in our database with SUM holdings at the end of the previous quarter. Our calculations also showed that SUM 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 eyes of most investors, hedge funds are perceived as underperforming, old investment tools of the past. While there are over 8000 funds trading today, Our researchers choose to focus on the upper echelon of this club, about 750 funds. These investment experts control the lion's share of the hedge fund industry's total capital, and by shadowing their top equity investments, Insider Monkey has unsheathed a few investment strategies that have historically outperformed Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_340075" align="aligncenter" width="450"]

Mason Hawkins of Southeastern Asset Management
Mason Hawkins of Southeastern Asset Management

Mason Hawkins of Southeastern Asset Management[/caption]

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the fresh hedge fund action surrounding Summit Materials Inc (NYSE:SUM).

How are hedge funds trading Summit Materials Inc (NYSE:SUM)?

Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the second quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in SUM a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

No of Hedge Funds with SUM Positions
No of Hedge Funds with SUM Positions

The largest stake in Summit Materials Inc (NYSE:SUM) was held by Southeastern Asset Management, which reported holding $284.6 million worth of stock at the end of September. It was followed by Adage Capital Management with a $79.7 million position. Other investors bullish on the company included GMT Capital, Wallace R. Weitz & Co., and Interval Partners. In terms of the portfolio weights assigned to each position Red Cedar Management allocated the biggest weight to Summit Materials Inc (NYSE:SUM), around 9.56% of its portfolio. Southeastern Asset Management is also relatively very bullish on the stock, setting aside 4.96 percent of its 13F equity portfolio to SUM.

As aggregate interest increased, key hedge funds have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, initiated the most outsized position in Summit Materials Inc (NYSE:SUM). Interval Partners had $31.3 million invested in the company at the end of the quarter. Aaron Cowen's Suvretta Capital Management also initiated a $30.9 million position during the quarter. The other funds with brand new SUM positions are Sander Gerber's Hudson Bay Capital Management, Mark Coe's Intrinsic Edge Capital, and Benjamin A. Smith's Laurion Capital Management.

Let's go over hedge fund activity in other stocks similar to Summit Materials Inc (NYSE:SUM). We will take a look at Stantec Inc. (NYSE:STN), First Financial Bancorp (NASDAQ:FFBC), Altair Engineering Inc. (NASDAQ:ALTR), and Spirit Airlines, Inc. (NYSE:SAVE). This group of stocks' market caps resemble SUM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STN,6,82873,0 FFBC,7,14549,-1 ALTR,10,129177,-4 SAVE,24,183395,-7 Average,11.75,102499,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $649 million in SUM's case. Spirit Airlines, Inc. (NYSE:SAVE) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) is the least popular one with only 6 bullish hedge fund positions. Summit Materials Inc (NYSE:SUM) 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 SUM, 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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