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Rollins, Inc. (ROL) vs. Hedge Fund Favorites in 2019

Debasis Saha

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Rollins, Inc. (NYSE:ROL).

Rollins, Inc. (NYSE:ROL) investors should pay attention to an increase in enthusiasm from smart money of late. ROL was in 25 hedge funds' portfolios at the end of September. There were 23 hedge funds in our database with ROL positions at the end of the previous quarter. Our calculations also showed that ROL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the eyes of most shareholders, hedge funds are assumed to be slow, old investment tools of yesteryear. While there are over 8000 funds with their doors open today, Our experts choose to focus on the masters of this group, about 750 funds. It is estimated that this group of investors command bulk of all hedge funds' total capital, and by keeping an eye on their matchless stock picks, Insider Monkey has figured out various investment strategies that have historically outrun the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Mario Gabelli
Mario Gabelli

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let's view the new hedge fund action encompassing Rollins, Inc. (NYSE:ROL).

How are hedge funds trading Rollins, Inc. (NYSE:ROL)?

At Q3's end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in ROL a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is ROL A Good Stock To Buy?
Is ROL A Good Stock To Buy?

The largest stake in Rollins, Inc. (NYSE:ROL) was held by GAMCO Investors, which reported holding $83.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $40.8 million position. Other investors bullish on the company included AQR Capital Management, Select Equity Group, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to Rollins, Inc. (NYSE:ROL), around 4.63% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, dishing out 1.58 percent of its 13F equity portfolio to ROL.

As one would reasonably expect, some big names have jumped into Rollins, Inc. (NYSE:ROL) headfirst. Select Equity Group, managed by Robert Joseph Caruso, initiated the most outsized position in Rollins, Inc. (NYSE:ROL). Select Equity Group had $32.7 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider's SG Capital Management also made a $8.3 million investment in the stock during the quarter. The following funds were also among the new ROL investors: Paul Tudor Jones's Tudor Investment Corp, Michael Platt and William Reeves's BlueCrest Capital Mgmt., and Mark Coe's Intrinsic Edge Capital.

Let's check out hedge fund activity in other stocks similar to Rollins, Inc. (NYSE:ROL). We will take a look at Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), Open Text Corporation (NASDAQ:OTEX), Pinnacle West Capital Corporation (NYSE:PNW), and DocuSign, Inc. (NASDAQ:DOCU). This group of stocks' market values resemble ROL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NCLH,30,1012048,-5 OTEX,14,610442,-2 PNW,24,865074,1 DOCU,26,673817,0 Average,23.5,790345,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $790 million. That figure was $306 million in ROL's case. Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) is the most popular stock in this table. On the other hand Open Text Corporation (NASDAQ:OTEX) is the least popular one with only 14 bullish hedge fund positions. Rollins, Inc. (NYSE:ROL) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ROL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ROL were disappointed as the stock returned -6.9% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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

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