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Was The Smart Money Right About Eagle Materials, Inc. (EXP)?

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  • EXP

In this article we will analyze whether Eagle Materials, Inc. (NYSE:EXP) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Eagle Materials, Inc. (NYSE:EXP) shareholders have witnessed an increase in enthusiasm from smart money lately. Eagle Materials, Inc. (NYSE:EXP) was in 36 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 41. There were 35 hedge funds in our database with EXP positions at the end of the first quarter. Our calculations also showed that EXP 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.

Martin Whitman Third Avenue Management Marty Whitman
Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, 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. Keeping this in mind let's take a gander at the new hedge fund action surrounding Eagle Materials, Inc. (NYSE:EXP).

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

At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXP over the last 24 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Eagle Materials, Inc. (NYSE:EXP), with a stake worth $51.1 million reported as of the end of June. Trailing Citadel Investment Group was Waratah Capital Advisors, which amassed a stake valued at $20.9 million. SG Capital Management, Third Avenue Management, and Soros Fund 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 Mountaineer Partners Management allocated the biggest weight to Eagle Materials, Inc. (NYSE:EXP), around 8.23% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, designating 5.69 percent of its 13F equity portfolio to EXP.

As industrywide interest jumped, some big names were leading the bulls' herd. Soros Fund Management, managed by George Soros, initiated the largest position in Eagle Materials, Inc. (NYSE:EXP). Soros Fund Management had $11.7 million invested in the company at the end of the quarter. Mark Lee's Mountaineer Partners Management also initiated a $11.3 million position during the quarter. The following funds were also among the new EXP investors: Zilvinas Mecelis's Covalis Capital, Allan Teh's Kamunting Street Capital, and Chuck Royce's Royce & Associates.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Eagle Materials, Inc. (NYSE:EXP) but similarly valued. These stocks are CACI International Inc (NYSE:CACI), Pan American Silver Corp. (NASDAQ:PAAS), Rexnord Corp (NYSE:RXN), NOV Inc. (NYSE:NOV), Stag Industrial Inc (NYSE:STAG), NCR Corporation (NYSE:NCR), and AbCellera Biologics Inc. (NASDAQ:ABCL). All of these stocks' market caps resemble EXP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CACI,26,491404,5 PAAS,24,312456,-3 RXN,29,521863,4 NOV,30,993193,1 STAG,15,232197,-2 NCR,38,526452,14 ABCL,18,773158,-2 Average,25.7,550103,2.4 [/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 $550 million. That figure was $244 million in EXP's case. NCR Corporation (NYSE:NCR) is the most popular stock in this table. On the other hand Stag Industrial Inc (NYSE:STAG) is the least popular one with only 15 bullish hedge fund positions. Eagle Materials, Inc. (NYSE:EXP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EXP is 78. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on EXP as the stock returned 9.7% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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