We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Valmont Industries, Inc. (NYSE:VMI).
Is Valmont Industries, Inc. (NYSE:VMI) going to take off soon? Hedge funds are becoming less hopeful. The number of bullish hedge fund bets retreated by 4 recently. Our calculations also showed that VMI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of metrics market participants employ to size up their holdings. A duo of the most underrated metrics are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can outperform the broader indices by a significant amount (see the details here).
[caption id="attachment_193003" align="aligncenter" width="400"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's take a gander at the new hedge fund action surrounding Valmont Industries, Inc. (NYSE:VMI).
Hedge fund activity in Valmont Industries, Inc. (NYSE:VMI)
At Q4's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in VMI a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Valmont Industries, Inc. (NYSE:VMI) was held by Impax Asset Management, which reported holding $128.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $58.8 million position. Other investors bullish on the company included Nitorum Capital, Millennium Management, and Harvey Partners. In terms of the portfolio weights assigned to each position Harvey Partners allocated the biggest weight to Valmont Industries, Inc. (NYSE:VMI), around 6.76% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, setting aside 2.34 percent of its 13F equity portfolio to VMI.
Judging by the fact that Valmont Industries, Inc. (NYSE:VMI) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few fund managers that slashed their entire stakes by the end of the third quarter. Intriguingly, Renaissance Technologies dumped the largest stake of all the hedgies followed by Insider Monkey, valued at close to $5.1 million in stock, and Julian Allen's Spitfire Capital was right behind this move, as the fund sold off about $4.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to Valmont Industries, Inc. (NYSE:VMI). These stocks are Alkermes Plc (NASDAQ:ALKS), Avista Corp (NYSE:AVA), Houlihan Lokey Inc (NYSE:HLI), and Nextera Energy Partners LP (NYSE:NEP). This group of stocks' market caps are closest to VMI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALKS,33,568267,7 AVA,15,149256,-2 HLI,10,128406,-7 NEP,17,127327,1 Average,18.75,243314,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $315 million in VMI's case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand Houlihan Lokey Inc (NYSE:HLI) is the least popular one with only 10 bullish hedge fund positions. Valmont Industries, Inc. (NYSE:VMI) 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. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 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 -39% during the same time period 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 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.
Disclosure: None. This article was originally published at Insider Monkey.