Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Rayonier Advanced Materials Inc (NYSE:RYAM) from the perspective of those elite funds.
Is Rayonier Advanced Materials Inc (NYSE:RYAM) a bargain? The smart money is taking a pessimistic view. The number of bullish hedge fund positions fell by 1 lately. Our calculations also showed that RYAM isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the new hedge fund action surrounding Rayonier Advanced Materials Inc (NYSE:RYAM).
How are hedge funds trading Rayonier Advanced Materials Inc (NYSE:RYAM)?
At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RYAM over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Rayonier Advanced Materials Inc (NYSE:RYAM), which was worth $25.1 million at the end of the second quarter. On the second spot was Adage Capital Management which amassed $9 million worth of shares. Moreover, Marcato Capital Management, Weiss Asset Management, and Hawkeye Capital were also bullish on Rayonier Advanced Materials Inc (NYSE:RYAM), allocating a large percentage of their portfolios to this stock.
Due to the fact that Rayonier Advanced Materials Inc (NYSE:RYAM) has faced declining sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few hedge funds who were dropping their positions entirely in the second quarter. It's worth mentioning that Frederick DiSanto's Ancora Advisors sold off the largest position of all the hedgies watched by Insider Monkey, worth close to $10.7 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund cut about $5.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in the second quarter.
Let's now review hedge fund activity in other stocks similar to Rayonier Advanced Materials Inc (NYSE:RYAM). We will take a look at Spirit of Texas Bancshares, Inc. (NASDAQ:STXB), Genie Energy Ltd (NYSE:GNE), Jumei International Holding Ltd (NYSE:JMEI), and Ryerson Holding Corporation (NYSE:RYI). All of these stocks' market caps are closest to RYAM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STXB,1,580,0 GNE,10,13157,1 JMEI,6,10108,3 RYI,16,9767,5 Average,8.25,8403,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $58 million in RYAM's case. Ryerson Holding Corporation (NYSE:RYI) is the most popular stock in this table. On the other hand Spirit of Texas Bancshares, Inc. (NASDAQ:STXB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Rayonier Advanced Materials Inc (NYSE:RYAM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RYAM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RYAM were disappointed as the stock returned -33.3% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.