Five Building Materials Stocks Hedge Funds Like

Stocks of building and construction material companies have been on fire this year. The stellar gains they have delivered can be gauged from the performance of the Dow Jones U.S. Building Materials & Fixtures Index, which has appreciated by 14.80% so far in 2016, while Dow Jones Industrial Average has inched up by 2.50%. Considering the rally that the sector is experiencing, we thought of compiling a list of building material stocks based on how popular they were among the hedge funds tracked by us at the end of first quarter. In this post, we will take a look at the five stocks that topped our list and will analyze their performance this year.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Kzenon/Shutterstock.com

#5 US Concrete Inc (NASDAQ:USCR)

– Investors with long positions (as of March 31): 22

– Aggregate value of investors’ holdings (as of March 31): $83.02 million

Ready-mixed concrete producer, US Concrete Inc (NASDAQ:USCR), saw its ownership among funds covered by us increasing by three during the first quarter. However, the aggregate value of their holdings in the company plummeted by over 30% during the same time. All of the four hedge funds that were the largest shareholder of the company at the end of 2015 reduced their stakes in it during the January-March period, including Chuck Royce‘s Royce & Associates, which brought its holding down by 24% to 234,104 shares. Shares of US Concrete reached their lifetime high of $69.66 in April and are currently trading up by 23% year-to-date. On April 21, analysts at BB&T Corp. initiated their coverage on the stock with a ‘Buy’ rating and $80 price target, which represents a potential upside of around 30%.

#4 Headwaters Inc (NYSE:HW)

– Investors with long positions (as of March 31): 24

– Aggregate value of investors’ holdings (as of March 31): $146.14 million

Headwaters Inc (NYSE:HW) is the only company in this list which saw a decline in its ownership among funds covered by us during the first quarter. Interestingly, despite the ownership of the company among funds tracked by us decreasing by five in that period, the aggregate value of their holdings in it remained nearly the same. Billionaire David E. Shaw‘s firm D.E. Shaw was one of the hedge funds that increased its stake in the company during the first quarter, by 9% to 376,351 shares. Headwaters Inc (NYSE:HW)’s stock has appreciated by 11.61% thus far in 2016, but is finding it extremely hard to trade above the $20 mark, which it breached for the first time last year in August. The company has consistently beat analysts’ earnings projection in the last 8 quarters and several analysts think that this trend might continue in the coming quarters.

#3 Eagle Materials, Inc. (NYSE:EXP)

– Investors with long positions (as of March 31): 30

– Aggregate value of investors’ holdings (as of March 31): $487.16 million

Though Eagle Materials, Inc. (NYSE:EXP)’s stock has had a stellar rally this year, registering gains of nearly 35% so far, it is still down 2% from the same time last year. During the first quarter, the number of hedge funds covered by us long Eagle Materials, Inc. (NYSE:EXP) rose by two and the aggregate value of their holdings in it climbed up by $22.8 million. Hedge funds that initiated a stake in Eagle Materials, Inc. during that period included Richard S. Meisenberg‘s ACK Asset Management, which purchased 370,000 shares of the company. Eagle Materials has kept its quarterly dividend of $0.10 per share unchanged for the past several years, despite witnessing a threefold increase in its stock price since 2012, due to which the stock currently sports an annual dividend yield of only 0.5%. On May 18, the company reported its fiscal 2016 fourth quarter numbers, which managed to beat analysts’ projections by a wide margin. While the Street had expected Eagle Materials to report EPS of $0.64 on revenue of $226.21 million, the company declared EPS of $0.80 on revenue of $252.10 million for the quarter.

#2 USG Corporation (NYSE:USG)

– Investors with long positions (as of March 31): 31

– Aggregate value of investors’ holdings (as of March 31): $1.4 billion

Moving on, the ownership of USG Corporation (NYSE:USG) among funds covered by us went up by seven and the aggregate value of their holdings in it jumped by $115 million during the first quarter. Shares of USG Corporation (NYSE:USG) started trading down  in the second-half of 2015 after being range-bound for more than two years, which continued till the beginning of 2016. However, owing to the phenomenal 55% gains they have registered since February, they are currently trading up by some 13% year-to-date. Citing the company’s dominant position in the domestic wallboard market and improving macros, most analysts believe that the stock will continue to perform well going forward. On May 4, analysts at Goldman Sachs reiterated their ‘Neutral’ rating on the stock, but boosted their price target to $27 from $24. With ownership of 39 million or 26.74% of all outstanding shares of USG Corporation, Warren Buffett‘s Berkshire Hathaway continued to remain its largest shareholder among funds tracked by us at the end of March.

#1 Continental Building Products Inc (NYSE:CBPX)

– Investors with long positions (as of March 31) : 31

– Aggregate value of investors’ holdings (as of March 31): $187.76 million

Continental Building Products Inc (NYSE:CBPX) was the building materials stock that saw the highest rise in popularity among hedge funds covered by us during the first quarter. The number of hedge funds tracked by Insider Monkey long Continental Building Products Inc (NYSE:CBPX) rose by 41% and the aggregate value of their holdings in it increased by almost 70% during that time. Funds that increased their stake in Continental Building Products significantly during the first quarter included Phill Gross And Robert Atchinson‘s Adage Capital Management, which boosted its holding by 74% to 1.96 million shares and was the largest shareholder of the company among funds we cover at the end of March. It’s not hard to understand why hedge funds are falling in love with the stock. It has been on a consistent uptrend since February and has so far registered gain of 32.32% in 2016. However, it’s not only hedge funds that are bullish on the stock, most analysts also share the same view. On June 2, analysts at Barclays reiterated their ‘Overweight’ rating on the stock and increased their price target to $24 from $22.

Disclosure: None