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Were Hedge Funds Right About Greenbrier Companies Inc (GBX)?

Debasis Saha

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Greenbrier Companies Inc (NYSE:GBX) is a good investment right now.

Is Greenbrier Companies Inc (NYSE:GBX) the right investment to pursue these days? Money managers are betting on the stock. The number of long hedge fund positions improved by 2 lately. Our calculations also showed that GBX 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).

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 S&P 500 ETFs by 41 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 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_673876" align="aligncenter" width="400"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let's take a look at the recent hedge fund action regarding Greenbrier Companies Inc (NYSE:GBX).

What have hedge funds been doing with Greenbrier Companies Inc (NYSE:GBX)?

At Q4's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the third quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in GBX a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GBX A Good Stock To Buy?

The largest stake in Greenbrier Companies Inc (NYSE:GBX) was held by Citadel Investment Group, which reported holding $4.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $4.1 million position. Other investors bullish on the company included Impala Asset Management, Skylands Capital, and Polaris Capital Management. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Greenbrier Companies Inc (NYSE:GBX), around 0.45% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, setting aside 0.38 percent of its 13F equity portfolio to GBX.

As one would reasonably expect, specific money managers were leading the bulls' herd. Renaissance Technologies, established the most valuable position in Greenbrier Companies Inc (NYSE:GBX). Renaissance Technologies had $4.1 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron's Algert Coldiron Investors also made a $1.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Donald Sussman's Paloma Partners, and John Overdeck and David Siegel's Two Sigma Advisors.

Let's also examine hedge fund activity in other stocks similar to Greenbrier Companies Inc (NYSE:GBX). These stocks are ARMOUR Residential REIT, Inc. (NYSE:ARR), Oasis Petroleum Inc. (NYSE:OAS), NextGen Healthcare, Inc. (NASDAQ:NXGN), and Endo International plc (NASDAQ:ENDP). This group of stocks' market caps match GBX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARR,11,34003,-3 OAS,17,97611,2 NXGN,16,25475,3 ENDP,17,294280,-2 Average,15.25,112842,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $24 million in GBX's case. Oasis Petroleum Inc. (NYSE:OAS) is the most popular stock in this table. On the other hand ARMOUR Residential REIT, Inc. (NYSE:ARR) is the least popular one with only 11 bullish hedge fund positions. Greenbrier Companies Inc (NYSE:GBX) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately GBX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GBX investors were disappointed as the stock returned -48.4% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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