How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding GMS Inc. (NYSE:GMS).
GMS Inc. (NYSE:GMS) has seen an increase in hedge fund sentiment lately. GMS Inc. (NYSE:GMS) was in 19 hedge funds’ portfolios at the end of March. The all time high for this statistic is 25. There were 16 hedge funds in our database with GMS positions at the end of the fourth quarter. Our calculations also showed that GMS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to go over the key hedge fund action surrounding GMS Inc. (NYSE:GMS).
Do Hedge Funds Think GMS Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GMS over the last 23 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in GMS Inc. (NYSE:GMS) was held by Coliseum Capital, which reported holding $189.9 million worth of stock at the end of December. It was followed by Scopia Capital with a $23.8 million position. Other investors bullish on the company included Verdad Advisers, Renaissance Technologies, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Coliseum Capital allocated the biggest weight to GMS Inc. (NYSE:GMS), around 14.22% of its 13F portfolio. Verdad Advisers is also relatively very bullish on the stock, dishing out 3.33 percent of its 13F equity portfolio to GMS.
As industrywide interest jumped, key money managers were breaking ground themselves. Scopia Capital, managed by Matt Sirovich and Jeremy Mindich, initiated the most valuable position in GMS Inc. (NYSE:GMS). Scopia Capital had $23.8 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $3.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital), Ken Grossman and Glen Schneider’s SG Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as GMS Inc. (NYSE:GMS) but similarly valued. These stocks are ArcBest Corp (NASDAQ:ARCB), Virtus Investment Partners Inc (NASDAQ:VRTS), Ping Identity Holding Corp. (NYSE:PING), BGC Partners, Inc. (NASDAQ:BGCP), Lakeland Financial Corporation (NASDAQ:LKFN), Zentalis Pharmaceuticals, Inc. (NASDAQ:ZNTL), and Lions Gate Entertainment Corporation (NYSE:LGF-B). All of these stocks’ market caps resemble GMS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARCB | 13 | 87202 | -1 |
| VRTS | 20 | 143608 | 0 |
| PING | 11 | 873908 | -5 |
| BGCP | 21 | 305412 | -3 |
| LKFN | 9 | 15719 | 2 |
| ZNTL | 16 | 580041 | -1 |
| LGF-B | 27 | 356880 | 4 |
| Average | 16.7 | 337539 | -0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.7 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $267 million in GMS’s case. Lions Gate Entertainment Corporation (NYSE:LGF-B) is the most popular stock in this table. On the other hand Lakeland Financial Corporation (NASDAQ:LKFN) is the least popular one with only 9 bullish hedge fund positions. GMS Inc. (NYSE:GMS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GMS is 58.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately GMS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on GMS were disappointed as the stock returned 7.8% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
