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Were Hedge Funds Right About Arcosa, Inc. (ACA)?

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·6 min read
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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 900 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 Arcosa, Inc. (NYSE:ACA).

Hedge fund interest in Arcosa, Inc. (NYSE:ACA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ACA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare ACA to other stocks including Relay Therapeutics, Inc. (NASDAQ:RLAY), Commscope Holding Company Inc (NASDAQ:COMM), and Independent Bank Group Inc (NASDAQ:IBTX) to get a better sense of its popularity.

In the eyes of most stock holders, hedge funds are assumed to be underperforming, outdated financial tools of the past. While there are over 8000 funds in operation at the moment, We choose to focus on the aristocrats of this club, around 850 funds. These hedge fund managers control the lion's share of the hedge fund industry's total capital, and by keeping track of their inimitable equity investments, Insider Monkey has discovered various investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Fred DiSanto Ancora Advisors
Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 let's review the fresh hedge fund action encompassing Arcosa, Inc. (NYSE:ACA).

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

Heading into the second quarter of 2021, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2020. By comparison, 17 hedge funds held shares or bullish call options in ACA a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Royce & Associates held the most valuable stake in Arcosa, Inc. (NYSE:ACA), which was worth $106 million at the end of the fourth quarter. On the second spot was Yacktman Asset Management which amassed $30.7 million worth of shares. Ancora Advisors, GAMCO Investors, and D E Shaw 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 Rutabaga Capital Management allocated the biggest weight to Arcosa, Inc. (NYSE:ACA), around 1.15% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.71 percent of its 13F equity portfolio to ACA.

Due to the fact that Arcosa, Inc. (NYSE:ACA) has witnessed a decline in interest from hedge fund managers, it's safe to say that there was a specific group of funds that decided to sell off their entire stakes by the end of the first quarter. Intriguingly, David Zorub's Parsifal Capital Management dropped the largest investment of all the hedgies watched by Insider Monkey, comprising an estimated $30.8 million in stock, and Jeffrey Moskowitz's Harvey Partners was right behind this move, as the fund dumped about $2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks similar to Arcosa, Inc. (NYSE:ACA). We will take a look at Relay Therapeutics, Inc. (NASDAQ:RLAY), Commscope Holding Company Inc (NASDAQ:COMM), Independent Bank Group Inc (NASDAQ:IBTX), Freedom Holding Corp. (NASDAQ:FRHC), Viant Technology Inc. (NASDAQ:DSP), Mr. Cooper Group Inc. (NASDAQ:COOP), and VEON Ltd. (NASDAQ:VEON). This group of stocks' market caps are similar to ACA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RLAY,20,636649,3 COMM,32,757950,-3 IBTX,9,74670,-5 FRHC,12,55186,4 DSP,14,70607,14 COOP,24,638610,2 VEON,8,20221,2 Average,17,321985,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $220 million in ACA's case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 8 bullish hedge fund positions. Arcosa, Inc. (NYSE:ACA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ACA is 42. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately ACA wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ACA investors were disappointed as the stock returned -19.1% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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