Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
NCI Building Systems, Inc. (NYSE:NCS) has seen an increase in enthusiasm from smart money of late. NCS was in 28 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with NCS holdings at the end of the previous quarter. Our calculations also showed that NCS isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the new hedge fund action regarding NCI Building Systems, Inc. (NYSE:NCS).
Hedge fund activity in NCI Building Systems, Inc. (NYSE:NCS)
At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 56% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NCS over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in NCI Building Systems, Inc. (NYSE:NCS), which was worth $43.3 million at the end of the third quarter. On the second spot was Millennium Management which amassed $17.8 million worth of shares. Moreover, AQR Capital Management, Royce & Associates, and Rutabaga Capital Management were also bullish on NCI Building Systems, Inc. (NYSE:NCS), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the largest position in NCI Building Systems, Inc. (NYSE:NCS). Marshall Wace LLP had $6.5 million invested in the company at the end of the quarter. Bradley LouisáRadoff’s Fondren Management also made a $1.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as NCI Building Systems, Inc. (NYSE:NCS) but similarly valued. We will take a look at Triumph Bancorp Inc (NASDAQ:TBK), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), Coeur Mining, Inc. (NYSE:CDE), and Douglas Dynamics Inc (NYSE:PLOW). All of these stocks’ market caps match NCS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TBK | 7 | 103874 | -6 |
| APLS | 14 | 255091 | 2 |
| CDE | 13 | 57796 | 1 |
| PLOW | 6 | 7964 | -2 |
| Average | 10 | 106181 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $151 million in NCS’s case. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is the most popular stock in this table. On the other hand Douglas Dynamics Inc (NYSE:PLOW) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks NCI Building Systems, Inc. (NYSE:NCS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
