Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Brady Corp (NYSE:BRC) makes for a good investment right now.
Brady Corp (NYSE:BRC) investors should be aware of a decrease in enthusiasm from smart money of late. BRC was in 15 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with BRC holdings at the end of the previous quarter. Our calculations also showed that BRC 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).
In the financial world there are dozens of methods stock market investors can use to evaluate publicly traded companies. Two of the less utilized methods are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the top investment managers can outpace the market by a solid margin (see the details here).
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s analyze the new hedge fund action surrounding Brady Corp (NYSE:BRC).
What does smart money think about Brady Corp (NYSE:BRC)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BRC over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Brady Corp (NYSE:BRC) was held by Renaissance Technologies, which reported holding $136.5 million worth of stock at the end of September. It was followed by Ariel Investments with a $28.5 million position. Other investors bullish on the company included GLG Partners, Winton Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Brady Corp (NYSE:BRC), around 0.36% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to BRC.
Due to the fact that Brady Corp (NYSE:BRC) has faced a decline in interest from the smart money, we can see that there exists a select few hedge funds who were dropping their positions entirely last quarter. Intriguingly, Israel Englander’s Millennium Management dumped the biggest investment of all the hedgies monitored by Insider Monkey, valued at close to $2.6 million in stock. Qing Li’s fund, Sciencast Management, also sold off its stock, about $0.4 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 5 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Brady Corp (NYSE:BRC) but similarly valued. These stocks are Virtu Financial Inc (NASDAQ:VIRT), Simmons First National Corporation (NASDAQ:SFNC), NeoGenomics, Inc. (NASDAQ:NEO), and South Jersey Industries Inc (NYSE:SJI). This group of stocks’ market values match BRC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VIRT | 15 | 93346 | -3 |
| SFNC | 6 | 25107 | -5 |
| NEO | 12 | 48630 | -2 |
| SJI | 18 | 141726 | 4 |
| Average | 12.75 | 77202 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $213 million in BRC’s case. South Jersey Industries Inc (NYSE:SJI) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 6 bullish hedge fund positions. Brady Corp (NYSE:BRC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately BRC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BRC were disappointed as the stock returned -27.8% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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.
