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Was The Smart Money Right About Loading Up On Generac Holdings Inc. (GNRC)?

Abigail Fisher
·6 min read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Generac Holdings Inc. (NYSE:GNRC).

Generac Holdings Inc. (NYSE:GNRC) investors should be aware of an increase in hedge fund sentiment lately. Generac Holdings Inc. (NYSE:GNRC) was in 36 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 29 hedge funds in our database with GNRC positions at the end of the first quarter. Our calculations also showed that GNRC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Millennium Management, Catapult Capital Management
Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Keeping this in mind let's review the key hedge fund action surrounding Generac Holdings Inc. (NYSE:GNRC).

How have hedgies been trading Generac Holdings Inc. (NYSE:GNRC)?

At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in GNRC 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.

Is GNRC A Good Stock To Buy?
Is GNRC A Good Stock To Buy?

The largest stake in Generac Holdings Inc. (NYSE:GNRC) was held by Impax Asset Management, which reported holding $112 million worth of stock at the end of June. It was followed by Millennium Management with a $71.5 million position. Other investors bullish on the company included Citadel Investment Group, Ariel Investments, and Adage Capital Management. In terms of the portfolio weights assigned to each position BeaconLight Capital allocated the biggest weight to Generac Holdings Inc. (NYSE:GNRC), around 5.77% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, earmarking 4.69 percent of its 13F equity portfolio to GNRC.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the largest position in Generac Holdings Inc. (NYSE:GNRC). Adage Capital Management had $29.6 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $25.2 million position during the quarter. The other funds with brand new GNRC positions are Alexander Mitchell's Scopus Asset Management, Donald Sussman's Paloma Partners, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Generac Holdings Inc. (NYSE:GNRC) but similarly valued. These stocks are Elastic N.V. (NYSE:ESTC), Tenaris S.A. (NYSE:TS), Weibo Corp (NASDAQ:WB), Host Hotels and Resorts Inc (NYSE:HST), A. O. Smith Corporation (NYSE:AOS), Juniper Networks, Inc. (NYSE:JNPR), and ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). This group of stocks' market values are similar to GNRC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESTC,43,1385856,10 TS,12,204534,-3 WB,14,92970,4 HST,29,221044,5 AOS,35,410037,10 JNPR,33,558592,-1 ACAD,44,2839807,16 Average,30,816120,5.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $816 million. That figure was $473 million in GNRC's case. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 12 bullish hedge fund positions. Generac Holdings Inc. (NYSE:GNRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GNRC is 77.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on GNRC as the stock returned 72.4% since the end of Q2 (through 10/30) 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.

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