We can judge whether Valmont Industries, Inc. (NYSE:VMI) 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 when we factor in known risk factors.
Valmont Industries, Inc. (NYSE:VMI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare VMI to other stocks including BancorpSouth, Bank (NYSE:BXS), Houlihan Lokey Inc (NYSE:HLI), and Strategic Education Inc (NASDAQ:STRA) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_728376" align="aligncenter" width="473"] Jonathan Barrett of Luminus Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the recent hedge fund action surrounding Valmont Industries, Inc. (NYSE:VMI).
What does smart money think about Valmont Industries, Inc. (NYSE:VMI)?
Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VMI over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Valmont Industries, Inc. (NYSE:VMI), with a stake worth $118.4 million reported as of the end of September. Trailing Impax Asset Management was Royce & Associates, which amassed a stake valued at $55 million. Nitorum Capital, Millennium Management, and Harvey Partners 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 Harvey Partners allocated the biggest weight to Valmont Industries, Inc. (NYSE:VMI), around 7.82% of its portfolio. Spitfire Capital is also relatively very bullish on the stock, dishing out 5.74 percent of its 13F equity portfolio to VMI.
Seeing as Valmont Industries, Inc. (NYSE:VMI) has experienced bearish sentiment from the smart money, it's easy to see that there lies a certain "tier" of fund managers that elected to cut their full holdings heading into Q4. At the top of the heap, Joel Greenblatt's Gotham Asset Management dumped the largest position of the 750 funds tracked by Insider Monkey, totaling an estimated $0.5 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund cut about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Valmont Industries, Inc. (NYSE:VMI). We will take a look at BancorpSouth, Bank (NYSE:BXS), Houlihan Lokey Inc (NYSE:HLI), Strategic Education Inc (NASDAQ:STRA), and Nextera Energy Partners LP (NYSE:NEP). This group of stocks' market caps resemble VMI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BXS,12,82186,0 HLI,14,136860,-1 STRA,19,213625,6 NEP,15,66400,2 Average,15,124768,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $289 million in VMI's case. Strategic Education Inc (NASDAQ:STRA) is the most popular stock in this table. On the other hand BancorpSouth, Bank (NYSE:BXS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Valmont Industries, Inc. (NYSE:VMI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VMI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VMI were disappointed as the stock returned 3.4% during the first two months of the fourth quarter and underperformed 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
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