Is Installed Building Products Inc (IBP) A Good Stock To Buy?
Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Installed Building Products Inc (NYSE:IBP)? The smart money sentiment can provide an answer to this question.
Is IBP a good stock to buy? Installed Building Products Inc (NYSE:IBP) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that IBP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as GATX Corporation (NYSE:GATX), HMS Holdings Corp. (NASDAQ:HMSY), and Cogent Communications Holdings Inc. (NASDAQ:CCOI) to gather more data points.
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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Lee Ainslie of Maverick Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Keeping this in mind we're going to take a peek at the latest hedge fund action regarding Installed Building Products Inc (NYSE:IBP).
Do Hedge Funds Think IBP Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in IBP a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Installed Building Products Inc (NYSE:IBP) was held by Electron Capital Partners, which reported holding $17.5 million worth of stock at the end of December. It was followed by Blue Grotto Capital with a $16.4 million position. Other investors bullish on the company included Hudson Way Capital Management, Balyasny Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to Installed Building Products Inc (NYSE:IBP), around 6.05% of its 13F portfolio. Hudson Way Capital Management is also relatively very bullish on the stock, designating 4.08 percent of its 13F equity portfolio to IBP.
Since Installed Building Products Inc (NYSE:IBP) has witnessed a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedgies that elected to cut their full holdings last quarter. Intriguingly, Lee Ainslie's Maverick Capital dropped the biggest position of the 750 funds watched by Insider Monkey, worth about $32.4 million in stock. Louis Bacon's fund, Moore Global Investments, also dropped its stock, about $4.6 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Installed Building Products Inc (NYSE:IBP). We will take a look at GATX Corporation (NYSE:GATX), HMS Holdings Corp. (NASDAQ:HMSY), Cogent Communications Holdings Inc. (NASDAQ:CCOI), Associated Banc Corp (NYSE:ASB), GrafTech International Ltd. (NYSE:EAF), Compania Cervecerias Unidas S.A. (NYSE:CCU), and MakeMyTrip Limited (NASDAQ:MMYT). This group of stocks' market caps are similar to IBP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GATX,16,203739,4 HMSY,20,628574,-6 CCOI,18,319894,-5 ASB,24,221388,2 EAF,38,416723,6 CCU,7,22493,-1 MMYT,9,49170,2 Average,18.9,265997,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $95 million in IBP's case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 7 bullish hedge fund positions. Installed Building Products Inc (NYSE:IBP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IBP is 53.8. 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 positive signal but 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 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately IBP wasn't nearly as popular as these 5 stocks and hedge funds that were betting on IBP were disappointed as the stock returned 0.9% since the end of March (through 7/16) 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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
