While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Armstrong World Industries, Inc. (NYSE:AWI) and see how the stock performed in comparison to hedge funds’ consensus picks.
Armstrong World Industries, Inc. (NYSE:AWI) has experienced a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that AWI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the 21st century investor’s toolkit there are a multitude of gauges stock market investors employ to size up their stock investments. A duo of the less known gauges are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top fund managers can outpace the broader indices by a solid margin (see the details here).
William Von Mueffling of Cantillon Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s go over the latest hedge fund action regarding Armstrong World Industries, Inc. (NYSE:AWI).
What does smart money think about Armstrong World Industries, Inc. (NYSE:AWI)?
Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in AWI a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Cantillon Capital Management held the most valuable stake in Armstrong World Industries, Inc. (NYSE:AWI), which was worth $126 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $91.1 million worth of shares. Gates Capital Management, D E Shaw, and AQR Capital Management 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 Gates Capital Management allocated the biggest weight to Armstrong World Industries, Inc. (NYSE:AWI), around 3.37% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, designating 1.22 percent of its 13F equity portfolio to AWI.
Seeing as Armstrong World Industries, Inc. (NYSE:AWI) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the largest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $9.8 million in stock. Minhua Zhang’s fund, Weld Capital Management, also said goodbye to its stock, about $2.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Armstrong World Industries, Inc. (NYSE:AWI). We will take a look at Eastgroup Properties Inc (NYSE:EGP), Black Hills Corporation (NYSE:BKH), Essent Group Ltd (NYSE:ESNT), and Penumbra Inc (NYSE:PEN). This group of stocks’ market valuations resemble AWI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EGP | 10 | 24396 | -2 |
| BKH | 19 | 186727 | 3 |
| ESNT | 23 | 301615 | -7 |
| PEN | 23 | 374880 | 4 |
| Average | 18.75 | 221905 | -0.5 |
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 $222 million. That figure was $505 million in AWI’s case. Essent Group Ltd (NYSE:ESNT) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Armstrong World Industries, Inc. (NYSE:AWI) is more popular among hedge funds. 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. Hedge funds were also right about betting on AWI as the stock returned 62.8% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
