Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Raven Industries, Inc. (NASDAQ:RAVN).
Is Raven Industries, Inc. (NASDAQ:RAVN) undervalued? Hedge funds are taking a bearish view. The number of long hedge fund positions decreased by 1 recently. Our calculations also showed that RAVN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RAVN was in 11 hedge funds' portfolios at the end of September. There were 12 hedge funds in our database with RAVN positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_375529" align="aligncenter" width="600"] Mario Gabelli of GAMCO Investors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the key hedge fund action encompassing Raven Industries, Inc. (NASDAQ:RAVN).
Hedge fund activity in Raven Industries, Inc. (NASDAQ:RAVN)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RAVN over the last 17 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the most valuable position in Raven Industries, Inc. (NASDAQ:RAVN). Royce & Associates has a $64.1 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, founded by Jim Simons, holding a $12.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include Israel Englander's Millennium Management, Mario Gabelli's GAMCO Investors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Raven Industries, Inc. (NASDAQ:RAVN), around 0.59% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.36 percent of its 13F equity portfolio to RAVN.
Seeing as Raven Industries, Inc. (NASDAQ:RAVN) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that decided to sell off their positions entirely by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest stake of the 750 funds followed by Insider Monkey, worth close to $3.4 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Raven Industries, Inc. (NASDAQ:RAVN) but similarly valued. We will take a look at RPC, Inc. (NYSE:RES), Helix Energy Solutions Group Inc. (NYSE:HLX), Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), and The Children's Place Inc. (NASDAQ:PLCE). This group of stocks' market valuations are similar to RAVN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RES,12,66333,-4 HLX,13,70293,2 PLAY,18,278866,-3 PLCE,20,247278,1 Average,15.75,165693,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $93 million in RAVN's case. The Children's Place Inc. (NASDAQ:PLCE) is the most popular stock in this table. On the other hand RPC, Inc. (NYSE:RES) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Raven Industries, Inc. (NASDAQ:RAVN) is even less popular than RES. Hedge funds dodged a bullet by taking a bearish stance towards RAVN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RAVN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RAVN investors were disappointed as the stock returned 3.1% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.