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Were Hedge Funds Right About Piling Into ABM Industries, Inc. (ABM)?

Abigail Fisher
·6 mins read

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of ABM Industries, Inc. (NYSE:ABM) based on that data and determine whether they were really smart about the stock.

Is ABM Industries, Inc. (NYSE:ABM) an excellent stock to buy now? Hedge funds were betting on the stock. The number of bullish hedge fund bets improved by 6 lately. Our calculations also showed that ABM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Millennium Management, Catapult Capital Management
Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to take a glance at the key hedge fund action encompassing ABM Industries, Inc. (NYSE:ABM).

How are hedge funds trading ABM Industries, Inc. (NYSE:ABM)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ABM over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Chuck Royce's Royce & Associates has the biggest position in ABM Industries, Inc. (NYSE:ABM), worth close to $10.7 million, comprising 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $10.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Israel Englander's Millennium Management, Renaissance Technologies and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to ABM Industries, Inc. (NYSE:ABM), around 0.2% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to ABM.

As aggregate interest increased, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the biggest position in ABM Industries, Inc. (NYSE:ABM). Millennium Management had $7.6 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $2.3 million investment in the stock during the quarter. The following funds were also among the new ABM investors: Greg Eisner's Engineers Gate Manager, Mika Toikka's AlphaCrest Capital Management, and Michael Gelband's ExodusPoint Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as ABM Industries, Inc. (NYSE:ABM) but similarly valued. We will take a look at Columbia Financial, Inc. (NASDAQ:CLBK), SPS Commerce, Inc. (NASDAQ:SPSC), Targa Resources Corp (NYSE:TRGP), and LATAM Airlines Group S.A. (NYSE:LTM). This group of stocks' market values match ABM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLBK,10,41683,-1 SPSC,16,137949,-8 TRGP,29,104380,2 LTM,10,8139,-4 Average,16.25,73038,-2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $47 million in ABM's case. Targa Resources Corp (NYSE:TRGP) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 10 bullish hedge fund positions. ABM Industries, Inc. (NYSE:ABM) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on ABM as the stock returned 47.4% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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