Headwaters Inc (HW): Are Hedge Funds Right About This Stock?

Headwaters Inc (NYSE:HW) shareholders have witnessed a decrease in support from the world’s most elite money managers lately.

According to most investors, hedge funds are perceived as unimportant, outdated investment vehicles of yesteryear. While there are greater than 8000 funds in operation today, we at Insider Monkey hone in on the leaders of this club, about 450 funds. It is widely believed that this group oversees the lion’s share of the hedge fund industry’s total capital, and by keeping an eye on their best picks, we have come up with a few investment strategies that have historically outstripped Mr. Market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Just as important, bullish insider trading activity is a second way to break down the world of equities. There are a variety of reasons for an executive to cut shares of his or her company, but only one, very obvious reason why they would behave bullishly. Various academic studies have demonstrated the useful potential of this method if “monkeys” know what to do (learn more here).

Keeping this in mind, let’s take a gander at the key action regarding Headwaters Inc (NYSE:HW).

Hedge fund activity in Headwaters Inc (NYSE:HW)

In preparation for this quarter, a total of 20 of the hedge funds we track held long positions in this stock, a change of -17% from one quarter earlier. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably.

When looking at the hedgies we track, Renaissance Technologies, managed by Jim Simons, holds the largest position in Headwaters Inc (NYSE:HW). Renaissance Technologies has a $23.4 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is Archer Capital Management, managed by Eric Edidin and Josh Lobel, which held a $19.5 million position; 3.4% of its 13F portfolio is allocated to the stock. Some other hedgies that are bullish include Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Cliff Asness’s AQR Capital Management and Drew Cupps’s Cupps Capital Management.

Due to the fact that Headwaters Inc (NYSE:HW) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their positions entirely heading into Q2. Intriguingly, Ken Grossman and Glen Schneider’s SG Capital Management cut the largest position of the 450+ funds we watch, totaling about $3 million in stock., and Jeffrey Gates of Gates Capital Management was right behind this move, as the fund cut about $2.2 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds heading into Q2.

What do corporate executives and insiders think about Headwaters Inc (NYSE:HW)?

Insider purchases made by high-level executives is particularly usable when the company in focus has seen transactions within the past half-year. Over the last six-month time frame, Headwaters Inc (NYSE:HW) has experienced zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Headwaters Inc (NYSE:HW). These stocks are AAON, Inc. (NASDAQ:AAON), Griffon Corporation (NYSE:GFF), Trex Company, Inc. (NYSE:TREX), Apogee Enterprises, Inc. (NASDAQ:APOG), and Universal Forest Products, Inc. (NASDAQ:UFPI). All of these stocks are in the general building materials industry and their market caps are closest to HW’s market cap.