Is GCP Applied Technologies Inc. (NYSE:GCP) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is GCP Applied Technologies Inc. (NYSE:GCP) a bargain? The best stock pickers are taking a bearish view. The number of bullish hedge fund positions went down by 2 lately. Our calculations also showed that GCP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GCP was in 21 hedge funds' portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with GCP holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's go over the recent hedge fund action encompassing GCP Applied Technologies Inc. (NYSE:GCP).
How have hedgies been trading GCP Applied Technologies Inc. (NYSE:GCP)?
At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GCP over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Starboard Value LP held the most valuable stake in GCP Applied Technologies Inc. (NYSE:GCP), which was worth $102.5 million at the end of the third quarter. On the second spot was 40 North Management which amassed $98.4 million worth of shares. GAMCO Investors, Adage Capital Management, and Greenhouse Funds were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 40 North Management allocated the biggest weight to GCP Applied Technologies Inc. (NYSE:GCP), around 8.79% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, earmarking 3.42 percent of its 13F equity portfolio to GCP.
Judging by the fact that GCP Applied Technologies Inc. (NYSE:GCP) has faced declining sentiment from the smart money, logic holds that there is a sect of money managers that elected to cut their full holdings heading into Q4. At the top of the heap, Kenneth Squire's 13D Management dropped the biggest investment of all the hedgies watched by Insider Monkey, totaling an estimated $14.1 million in stock. Derek C. Schrier's fund, Indaba Capital Management, also dumped its stock, about $14 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to GCP Applied Technologies Inc. (NYSE:GCP). These stocks are Rent-A-Center Inc (NASDAQ:RCII), TPG Specialty Lending Inc (NYSE:TSLX), Alamo Group, Inc. (NYSE:ALG), and TriMas Corporation (NASDAQ:TRS). This group of stocks' market valuations are similar to GCP's market valuation
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RCII,28,382437,10 TSLX,8,61787,-2 ALG,10,216837,3 TRS,14,110541,-1 Average,15,192901,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $342 million in GCP's case. Rent-A-Center Inc (NASDAQ:RCII) is the most popular stock in this table. On the other hand TPG Specialty Lending Inc (NYSE:TSLX) is the least popular one with only 8 bullish hedge fund positions. GCP Applied Technologies Inc. (NYSE:GCP) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on GCP as the stock returned 16.2% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.