Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Graham Corporation (NYSE:GHM).
Is Graham Corporation (NYSE:GHM) the right pick for your portfolio? Investors who are in the know are in a bearish mood. The number of long hedge fund bets went down by 5 recently. Our calculations also showed that GHM 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). GHM was in 5 hedge funds' portfolios at the end of March. There were 10 hedge funds in our database with GHM holdings at the end of the previous quarter. 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 58 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.
[caption id="attachment_738761" align="aligncenter" width="399"] Fred DiSanto of Ancora Advisors[/caption]
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 stocks recommended/scorned by legendary Bill Miller. 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. Now let's review the key hedge fund action regarding Graham Corporation (NYSE:GHM).
What does smart money think about Graham Corporation (NYSE:GHM)?
Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -50% from the fourth quarter of 2019. By comparison, 5 hedge funds held shares or bullish call options in GHM a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Graham Corporation (NYSE:GHM), worth close to $5.9 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $5.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions include Frederick DiSanto's Ancora Advisors, D. E. Shaw's D E Shaw and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Graham Corporation (NYSE:GHM), around 0.07% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to GHM.
Since Graham Corporation (NYSE:GHM) has experienced falling interest from hedge fund managers, logic holds that there is a sect of funds who sold off their positions entirely heading into Q4. At the top of the heap, Charles Frumberg's Emancipation Capital cut the largest position of all the hedgies monitored by Insider Monkey, worth close to $1.1 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 5 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to Graham Corporation (NYSE:GHM). We will take a look at Unity Bancorp, Inc. (NASDAQ:UNTY), Veritiv Corp (NYSE:VRTV), Del Taco Restaurants Inc (NASDAQ:TACO), and Coastal Financial Corporation (NASDAQ:CCB). This group of stocks' market valuations are similar to GHM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNTY,4,9903,0 VRTV,13,33118,2 TACO,8,5571,0 CCB,2,11773,-2 Average,6.75,15091,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $13 million in GHM's case. Veritiv Corp (NYSE:VRTV) is the most popular stock in this table. On the other hand Coastal Financial Corporation (NASDAQ:CCB) is the least popular one with only 2 bullish hedge fund positions. Graham Corporation (NYSE:GHM) 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 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 surpassed the market by 13.2 percentage points. Unfortunately GHM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GHM investors were disappointed as the stock returned -11.3% during the second 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 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.