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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Griffon Corporation (NYSE:GFF).
Griffon Corporation (NYSE:GFF) was in 10 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 24. GFF investors should be aware of a decrease in enthusiasm from smart money recently. There were 13 hedge funds in our database with GFF holdings at the end of March. Our calculations also showed that GFF isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's view the fresh hedge fund action surrounding Griffon Corporation (NYSE:GFF).
Do Hedge Funds Think GFF Is A Good Stock To Buy Now?
At second quarter's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GFF over the last 24 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.
Among these funds, GAMCO Investors held the most valuable stake in Griffon Corporation (NYSE:GFF), which was worth $97.7 million at the end of the second quarter. On the second spot was Select Equity Group which amassed $30.4 million worth of shares. Royce & Associates, AQR Capital Management, and Two Sigma Advisors 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 GAMCO Investors allocated the biggest weight to Griffon Corporation (NYSE:GFF), around 0.83% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to GFF.
Due to the fact that Griffon Corporation (NYSE:GFF) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there were a few money managers who sold off their full holdings in the second quarter. Interestingly, George McCabe's Portolan Capital Management sold off the largest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $6.7 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $6.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds in the second quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Griffon Corporation (NYSE:GFF) but similarly valued. These stocks are Enterprise Financial Services Corp (NASDAQ:EFSC), Costamare Inc (NYSE:CMRE), Itau CorpBanca (NYSE:ITCB), Gevo, Inc. (NASDAQ:GEVO), Hibbett, Inc. (NASDAQ:HIBB), NV5 Global Inc (NASDAQ:NVEE), and Astec Industries, Inc. (NASDAQ:ASTE). All of these stocks' market caps are similar to GFF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EFSC,9,30331,-5 CMRE,17,48086,5 ITCB,2,1252,0 GEVO,8,33871,2 HIBB,22,166812,5 NVEE,10,40778,-6 ASTE,10,68019,-2 Average,11.1,55593,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.1 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $149 million in GFF's case. Hibbett, Inc. (NASDAQ:HIBB) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 2 bullish hedge fund positions. Griffon Corporation (NYSE:GFF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GFF is 34.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately GFF wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); GFF investors were disappointed as the stock returned -4.1% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.