Do Hedge Funds Love Headwaters Inc (HW)?

Concerns over a shift in Fed’s easy monetary policy have hit several hedge funds hard during the third quarter. A number of sectors are in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25, 2015 and October 30, 2015. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Headwaters Inc (NYSE:HW).

Is Headwaters Inc (NYSE:HW) a worthy investment right now? Money managers are taking an optimistic view. The number of bullish hedge fund bets improved by 1 lately. HW was in 24 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with HW holdings at the end of the previous quarter. 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 ClubCorp Holdings Inc (NYSE:MYCC), Park National Corporation (NYSEMKT:PRK), and Builders FirstSource, Inc. (NASDAQ:BLDR) to gather more data points.

In the eyes of most shareholders, hedge funds are seen as underperforming, outdated investment vehicles of years past. While there are greater than 8000 funds in operation today, Our researchers hone in on the crème de la crème of this club, around 700 funds. These hedge fund managers direct the majority of all hedge funds’ total capital, and by monitoring their top equity investments, Insider Monkey has come up with a number of investment strategies that have historically outrun the market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, we’re going to take a glance at the recent action encompassing Headwaters Inc (NYSE:HW).

Hedge fund activity in Headwaters Inc (NYSE:HW)

Heading into Q4, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Gates’ Gates Capital Management has the number one position in Headwaters Inc (NYSE:HW), worth close to $43.7 million, comprising 1.7% of its total 13F portfolio. On Gates Capital Management’s heels is Columbus Circle Investors, with an $24.2 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish include Peter Schliemann’s Rutabaga Capital Management, Eduardo Abush’s Waterfront Capital Partners and Ken Griffin’s Citadel Investment Group.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Pyrrho Capital Management, managed by Vishal Bhutani and Joshua Bederman, established the most valuable position in Headwaters Inc (NYSE:HW). Pyrrho Capital Management had $0.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated an $0.5 million position during the quarter. The following funds were also among the new HW investors: Charles Paquelet’s Skylands Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks similar to Headwaters Inc (NYSE:HW). These stocks are ClubCorp Holdings Inc (NYSE:MYCC), Park National Corporation (NYSEMKT:PRK), Builders FirstSource, Inc. (NASDAQ:BLDR), and Kaiser Aluminum Corp. (NASDAQ:KALU). This group of stocks’ market values are closest to HW’s market value.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $170 million in HW’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Park National Corporation (NYSEMKT:PRK) is the least popular one with only 5 bullish hedge fund positions. Headwaters Inc (NYSE:HW) 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. In this regard BLDR might be a better candidate to consider a long position.