"The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery," This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Argan, Inc. (NYSE:AGX) was in 12 hedge funds' portfolios at the end of the first quarter of 2019. AGX shareholders have witnessed a decrease in support from the world's most elite money managers recently. There were 13 hedge funds in our database with AGX holdings at the end of the previous quarter. Our calculations also showed that AGX isn't among the 30 most popular stocks among hedge funds.
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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a glance at the key hedge fund action regarding Argan, Inc. (NYSE:AGX).
How have hedgies been trading Argan, Inc. (NYSE:AGX)?
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the fourth quarter of 2018. By comparison, 17 hedge funds held shares or bullish call options in AGX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Argan, Inc. (NYSE:AGX), which was worth $41.5 million at the end of the first quarter. On the second spot was Royce & Associates which amassed $32.1 million worth of shares. Moreover, Hawk Ridge Management, Driehaus Capital, and Fairfax Financial Holdings were also bullish on Argan, Inc. (NYSE:AGX), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Argan, Inc. (NYSE:AGX) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers that decided to sell off their full holdings heading into Q3. Interestingly, Phil Frohlich's Prescott Group Capital Management dropped the biggest investment of the 700 funds watched by Insider Monkey, comprising close to $1.4 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also cut its stock, about $0.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let's check out hedge fund activity in other stocks similar to Argan, Inc. (NYSE:AGX). We will take a look at SP Plus Corp (NASDAQ:SP), Duluth Holdings Inc. (NASDAQ:DLTH), Cara Therapeutics Inc (NASDAQ:CARA), and Seacor Holdings, Inc. (NYSE:CKH). This group of stocks' market caps are similar to AGX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SP,14,102342,2 DLTH,12,10556,4 CARA,8,16562,-1 CKH,11,122642,-5 Average,11.25,63026,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $123 million in AGX's case. SP Plus Corp (NASDAQ:SP) is the most popular stock in this table. On the other hand Cara Therapeutics Inc (NASDAQ:CARA) is the least popular one with only 8 bullish hedge fund positions. Argan, Inc. (NYSE:AGX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AGX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AGX were disappointed as the stock returned -17.2% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.