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Was The Smart Money Right About W.R. Grace & Co. (GRA)?

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The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards W.R. Grace & Co. (NYSE:GRA).

W.R. Grace & Co. (NYSE:GRA) was in 40 hedge funds' portfolios at the end of December. The all time high for this statistic is 47. GRA has seen an increase in enthusiasm from smart money lately. There were 39 hedge funds in our database with GRA holdings at the end of September. Our calculations also showed that GRA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Winters
David Winters

David S. Winter of 40 North Management

At Insider Monkey we leave no stone unturned when looking for 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 best hydrogen fuel cell 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. Now we're going to check out the key hedge fund action regarding W.R. Grace & Co. (NYSE:GRA).

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

At the end of December, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. On the other hand, there were a total of 46 hedge funds with a bullish position in GRA 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.

Among these funds, 40 North Management held the most valuable stake in W.R. Grace & Co. (NYSE:GRA), which was worth $540.8 million at the end of the fourth quarter. On the second spot was Soroban Capital Partners which amassed $149.7 million worth of shares. Lyrical Asset Management, Diamond Hill Capital, and Cantillon Capital 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 Atlantic Investment Management allocated the biggest weight to W.R. Grace & Co. (NYSE:GRA), around 18.95% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, designating 16.3 percent of its 13F equity portfolio to GRA.

As aggregate interest increased, specific money managers were breaking ground themselves. JANA Partners, managed by Barry Rosenstein, initiated the most outsized position in W.R. Grace & Co. (NYSE:GRA). JANA Partners had $16.8 million invested in the company at the end of the quarter. Michael Price's MFP Investors also made a $11 million investment in the stock during the quarter. The other funds with new positions in the stock are Joseph Samuels's Islet Management, Isaac Corre's Governors Lane, and Phill Gross and Robert Atchinson's Adage Capital Management.

Let's go over hedge fund activity in other stocks similar to W.R. Grace & Co. (NYSE:GRA). We will take a look at John Bean Technologies Corporation (NYSE:JBT), BMC Stock Holdings, Inc. (NASDAQ:BMCH), Celsius Holdings, Inc. (NASDAQ:CELH), WNS (Holdings) Limited (NYSE:WNS), FuelCell Energy, Inc. (NASDAQ:FCEL), MicroStrategy Incorporated (NASDAQ:MSTR), and Jumia Technologies AG (NYSE:JMIA). This group of stocks' market valuations match GRA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JBT,13,116188,-8 BMCH,30,786694,-1 CELH,19,160683,2 WNS,23,288430,2 FCEL,15,130882,-2 MSTR,15,134684,-5 JMIA,13,241648,4 Average,18.3,265601,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $1259 million in GRA's case. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is the most popular stock in this table. On the other hand John Bean Technologies Corporation (NYSE:JBT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks W.R. Grace & Co. (NYSE:GRA) is more popular among hedge funds. Our overall hedge fund sentiment score for GRA is 81.5. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on GRA as the stock returned 26.1% since the end of December (through 4/30) 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.

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