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Hedge Funds Are Warming Up To GFL Environmental Inc. (GFL)

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  • GFLU

In this article we are going to use hedge fund sentiment as a tool and determine whether GFL Environmental Inc. (NYSE:GFL) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is GFL Environmental Inc. (NYSE:GFL) the right investment to pursue these days? Prominent investors were betting on the stock. The number of long hedge fund positions inched up by 1 recently. GFL Environmental Inc. (NYSE:GFL) was in 23 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GFL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 22 hedge funds in our database with GFL holdings at the end of March.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Robert Pohly of Samlyn Capital

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. Now we're going to take a look at the new hedge fund action encompassing GFL Environmental Inc. (NYSE:GFL).

Do Hedge Funds Think GFL Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in GFL a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Suvretta Capital Management was the largest shareholder of GFL Environmental Inc. (NYSE:GFL), with a stake worth $153.6 million reported as of the end of June. Trailing Suvretta Capital Management was Palestra Capital Management, which amassed a stake valued at $76.2 million. Highbridge Capital Management, Samlyn Capital, and Adage Capital Management 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 ADW Capital allocated the biggest weight to GFL Environmental Inc. (NYSE:GFL), around 12.22% of its 13F portfolio. DSAM Partners is also relatively very bullish on the stock, dishing out 6.71 percent of its 13F equity portfolio to GFL.

As one would reasonably expect, specific money managers were breaking ground themselves. Palestra Capital Management, managed by Andrew Immerman and Jeremy Schiffman, established the most valuable position in GFL Environmental Inc. (NYSE:GFL). Palestra Capital Management had $76.2 million invested in the company at the end of the quarter. Robert Pohly's Samlyn Capital also made a $56.4 million investment in the stock during the quarter. The following funds were also among the new GFL investors: Phill Gross and Robert Atchinson's Adage Capital Management, Renaissance Technologies, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as GFL Environmental Inc. (NYSE:GFL) but similarly valued. We will take a look at Paylocity Holding Corp (NASDAQ:PCTY), Ares Management Corp (NYSE:ARES), Kirkland Lake Gold Ltd. (NYSE:KL), Opendoor Technologies Inc. (NASDAQ:OPEN), Owens Corning (NYSE:OC), East West Bancorp, Inc. (NASDAQ:EWBC), and Targa Resources Corp (NYSE:TRGP). This group of stocks' market caps are similar to GFL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PCTY,19,507279,-3 ARES,20,686208,4 KL,22,391037,-3 OPEN,35,765048,2 OC,34,425375,4 EWBC,24,480255,-1 TRGP,26,387970,2 Average,25.7,520453,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $671 million in GFL's case. Opendoor Technologies Inc. (NASDAQ:OPEN) is the most popular stock in this table. On the other hand Paylocity Holding Corp (NASDAQ:PCTY) is the least popular one with only 19 bullish hedge fund positions. GFL Environmental Inc. (NYSE:GFL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GFL is 48.5. 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. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on GFL as the stock returned 29.5% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.