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In this article we are going to use hedge fund sentiment as a tool and determine whether Resideo Technologies, Inc. (NYSE:REZI) 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 REZI stock a buy? Resideo Technologies, Inc. (NYSE:REZI) was in 31 hedge funds' portfolios at the end of December. The all time high for this statistic is 35. REZI investors should pay attention to an increase in support from the world's most elite money managers lately. There were 23 hedge funds in our database with REZI positions at the end of the third quarter. Our calculations also showed that REZI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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. 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 124 percentage points since March 2017 (see the details here).
David Einhorn of Greenlight Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this biotech stock. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Keeping this in mind let's take a look at the fresh hedge fund action regarding Resideo Technologies, Inc. (NYSE:REZI).
Do Hedge Funds Think REZI Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in REZI a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Praesidium Investment Management Company was the largest shareholder of Resideo Technologies, Inc. (NYSE:REZI), with a stake worth $185.5 million reported as of the end of December. Trailing Praesidium Investment Management Company was Freshford Capital Management, which amassed a stake valued at $114.3 million. Greenlight Capital, D E Shaw, and GAMCO Investors 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 Freshford Capital Management allocated the biggest weight to Resideo Technologies, Inc. (NYSE:REZI), around 16.62% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, setting aside 9.55 percent of its 13F equity portfolio to REZI.
Consequently, key hedge funds were breaking ground themselves. Ophir Asset Management, managed by Steven Ng and Andrew Mitchell, established the most outsized position in Resideo Technologies, Inc. (NYSE:REZI). Ophir Asset Management had $18.2 million invested in the company at the end of the quarter. Mark Coe's Intrinsic Edge Capital also made a $13.9 million investment in the stock during the quarter. The following funds were also among the new REZI investors: Paul Marshall and Ian Wace's Marshall Wace LLP, Ira Unschuld's Brant Point Investment Management, and Renaissance Technologies.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Resideo Technologies, Inc. (NYSE:REZI) but similarly valued. We will take a look at Corcept Therapeutics Incorporated (NASDAQ:CORT), Installed Building Products Inc (NYSE:IBP), Canadian Solar Inc. (NASDAQ:CSIQ), Applied Industrial Technologies Inc (NYSE:AIT), Kennametal Inc. (NYSE:KMT), Trinity Industries, Inc. (NYSE:TRN), and Acushnet Holdings Corp. (NYSE:GOLF). This group of stocks' market values match REZI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CORT,20,340663,-2 IBP,21,119674,1 CSIQ,14,118524,-11 AIT,21,72081,-3 KMT,14,279869,-2 TRN,22,1005525,-1 GOLF,13,21102,1 Average,17.9,279634,-2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.9 hedge funds with bullish positions and the average amount invested in these stocks was $280 million. That figure was $628 million in REZI's case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Resideo Technologies, Inc. (NYSE:REZI) is more popular among hedge funds. Our overall hedge fund sentiment score for REZI is 86.6. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.2% in 2021 through April 12th but still managed to beat the market by 1.5 percentage points. Hedge funds were also right about betting on REZI as the stock returned 32.5% since the end of December (through 4/12) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.