The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Eagle Materials, Inc. (NYSE:EXP) based on those filings.
Hedge fund interest in Eagle Materials, Inc. (NYSE:EXP) shares was flat at the end of last quarter. This is usually a negative indicator, but we need more data to make a determination. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Ternium S.A. (NYSE:TX), Cyberark Software Ltd (NASDAQ:CYBR), and DCP Midstream LP (NYSE:DCP) to gather more data points. Our calculations also showed that EXP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_735628" align="aligncenter" width="1613"] Scott Ferguson of Sachem Head Capital[/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. We're going to take a glance at the key hedge fund action encompassing Eagle Materials, Inc. (NYSE:EXP).
What does smart money think about Eagle Materials, Inc. (NYSE:EXP)?
At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXP over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Sachem Head Capital was the largest shareholder of Eagle Materials, Inc. (NYSE:EXP), with a stake worth $294.3 million reported as of the end of September. Trailing Sachem Head Capital was Empyrean Capital Partners, which amassed a stake valued at $91.1 million. Long Pond Capital, Millennium Management, and Citadel Investment Group 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 Sachem Head Capital allocated the biggest weight to Eagle Materials, Inc. (NYSE:EXP), around 23.04% of its portfolio. Broad Bay Capital is also relatively very bullish on the stock, designating 10.03 percent of its 13F equity portfolio to EXP.
Because Eagle Materials, Inc. (NYSE:EXP) has faced declining sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers that slashed their positions entirely heading into Q4. At the top of the heap, Lee Ainslie's Maverick Capital dumped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $38 million in call options. Traci Lerner's fund, Chescapmanager LLC, also dropped its call options, about $23.2 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Eagle Materials, Inc. (NYSE:EXP). We will take a look at Ternium S.A. (NYSE:TX), Cyberark Software Ltd (NASDAQ:CYBR), DCP Midstream LP (NYSE:DCP), and Cameco Corporation (NYSE:CCJ). All of these stocks' market caps match EXP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TX,8,52465,-6 CYBR,18,257050,-1 DCP,3,8420,1 CCJ,25,384721,1 Average,13.5,175664,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $819 million in EXP's case. Cameco Corporation (NYSE:CCJ) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Eagle Materials, Inc. (NYSE:EXP) is more popular among hedge funds. 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. Unfortunately EXP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EXP were disappointed as the stock returned 2.4% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.