Did The Smart Money Play Eagle Materials, Inc. (EXP) Correctly?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Eagle Materials, Inc. (NYSE:EXP) and determine whether hedge funds skillfully traded this stock.

Eagle Materials, Inc. (NYSE:EXP) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 36 hedge funds’ portfolios at the end of the third quarter of 2021. Our calculations also showed that EXP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Spirit Realty Capital Inc (NYSE:SRC), Novanta Inc. (NASDAQ:NOVT), and EngageSmart, LLC (NYSE:ESMT) to gather more data points.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Eagle Materials, Inc. (NYSE:EXP).

Chuck Royce of Royce & Associates

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

At Q3’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXP over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Anomaly Capital Management was the largest shareholder of Eagle Materials, Inc. (NYSE:EXP), with a stake worth $29.8 million reported as of the end of September. Trailing Anomaly Capital Management was Millennium Management, which amassed a stake valued at $19.6 million. Royce & Associates, Soros Fund Management, and Waratah Capital Advisors 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 Birch Run Capital allocated the biggest weight to Eagle Materials, Inc. (NYSE:EXP), around 6.79% of its 13F portfolio. Mountaineer Partners Management is also relatively very bullish on the stock, setting aside 6.65 percent of its 13F equity portfolio to EXP.

Since Eagle Materials, Inc. (NYSE:EXP) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few money managers that slashed their entire stakes last quarter. At the top of the heap, Martin Whitman’s Third Avenue Management sold off the largest stake of the 750 funds monitored by Insider Monkey, valued at about $12.4 million in stock. Zilvinas Mecelis’s fund, Covalis Capital, also dumped its stock, about $10.6 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Eagle Materials, Inc. (NYSE:EXP). These stocks are Spirit Realty Capital Inc (NYSE:SRC), Novanta Inc. (NASDAQ:NOVT), EngageSmart, LLC (NYSE:ESMT), I-Mab (NASDAQ:IMAB), Medallia, Inc. (NYSE:MDLA), Canopy Growth Corporation (NASDAQ:CGC), and nVent Electric plc (NYSE:NVT). This group of stocks’ market values match EXP’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $442 million. That figure was $188 million in EXP’s case. nVent Electric plc (NYSE:NVT) is the most popular stock in this table. On the other hand Novanta Inc. (NASDAQ:NOVT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Eagle Materials, Inc. (NYSE:EXP) is more popular among hedge funds. Our overall hedge fund sentiment score for EXP is 81.3. 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. 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 returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on EXP as the stock returned 11.4% since the end of September (through 1/31) 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.

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