Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Graco Inc. (NYSE:GGG)? The smart money sentiment can provide an answer to this question.
Is Graco Inc. (NYSE:GGG) the right pick for your portfolio? The best stock pickers are getting more optimistic. The number of bullish hedge fund bets inched up by 6 in recent months. Our calculations also showed that GGG 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.
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' 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 this former hedge fund manager 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. Let's take a look at the latest hedge fund action encompassing Graco Inc. (NYSE:GGG).
What does smart money think about Graco Inc. (NYSE:GGG)?
At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in GGG over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GAMCO Investors was the largest shareholder of Graco Inc. (NYSE:GGG), with a stake worth $112.5 million reported as of the end of March. Trailing GAMCO Investors was GLG Partners, which amassed a stake valued at $17.4 million. Royce & Associates, Citadel Investment Group, and Adage Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers were leading the bulls' herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most outsized position in Graco Inc. (NYSE:GGG). Adage Capital Management had $11 million invested in the company at the end of the quarter. Michael Hintze's CQS Cayman LP also made a $2.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Nick Niell's Arrowgrass Capital Partners, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital.
Let's also examine hedge fund activity in other stocks similar to Graco Inc. (NYSE:GGG). These stocks are Tyler Technologies, Inc. (NYSE:TYL), Crown Holdings, Inc. (NYSE:CCK), Lear Corporation (NYSE:LEA), and National Oilwell Varco, Inc. (NYSE:NOV). This group of stocks' market caps resemble GGG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TYL,24,540132,-7 CCK,35,877153,-3 LEA,31,843807,-9 NOV,22,755334,4 Average,28,754107,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $754 million. That figure was $204 million in GGG's case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand National Oilwell Varco, Inc. (NYSE:NOV) is the least popular one with only 22 bullish hedge fund positions. Graco Inc. (NYSE:GGG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 GGG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GGG investors were disappointed as the stock returned -8% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.