Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Ennis, Inc. (NYSE:EBF) a worthy investment today? Money managers are reducing their bets on the stock. The number of long hedge fund positions dropped by 1 in recent months. Our calculations also showed that EBF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). EBF was in 11 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with EBF holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the key hedge fund action encompassing Ennis, Inc. (NYSE:EBF).
How have hedgies been trading Ennis, Inc. (NYSE:EBF)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the second quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in EBF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Ennis, Inc. (NYSE:EBF), which was worth $34.7 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $21.4 million worth of shares. AQR Capital Management, Millennium Management, and Winton 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 Zebra Capital Management allocated the biggest weight to Ennis, Inc. (NYSE:EBF), around 0.22% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to EBF.
Since Ennis, Inc. (NYSE:EBF) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Donald Sussman’s Paloma Partners cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $0.7 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also said goodbye to its stock, about $0.5 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ennis, Inc. (NYSE:EBF) but similarly valued. These stocks are OrthoPediatrics Corp. (NASDAQ:KIDS), Thoratec Corporation (NASDAQ:THOR), eXp World Holdings, Inc. (NASDAQ:EXPI), and Repay Holdings Corporation (NASDAQ:RPAY). This group of stocks’ market valuations are closest to EBF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KIDS | 7 | 31059 | -1 |
| THOR | 7 | 280891 | 0 |
| EXPI | 5 | 4434 | 3 |
| RPAY | 9 | 61061 | -3 |
| Average | 7 | 94361 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $69 million in EBF’s case. Repay Holdings Corporation (NASDAQ:RPAY) is the most popular stock in this table. On the other hand eXp World Holdings, Inc. (NASDAQ:EXPI) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Ennis, Inc. (NYSE:EBF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EBF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EBF were disappointed as the stock returned 3.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
