Hedge Funds Are Buying These 10 Mid-Caps, Part 1

Mid-cap companies, which have market capitalizations between $10 billion and $20 billion, represent well-established companies that generally lie between slow-growing large-cap companies and fast-growing small-cap companies. One of the pivotal reasons for investing in mid-cap stocks is that these companies are oftentimes overlooked by most financial services hubs and analysts, and could eventually attract substantial investor interest from hedge fund investors and institutional investors (these investment vehicles usually tend to move stock prices higher, mainly due to their immense pool of capital). Furthermore, statistics reveal that mid-cap companies tend to generate higher earnings growth on aggregate than small-cap companies, with significantly less volatility, which serves as another reason for examining the mid-cap space closely. That being said, this article will reveal five stocks from an overall list of ten mid-cap stocks that received substantial attention from the hedge fund firms monitored by Insider Monkey during the third quarter. Be sure to check back later for Part 2, which will reveal the remaining five mid-cap stocks that hedge funds have been buying up lately.

Vulcan Materials Company (NYSE:VMC)

-Investors with Long Positions (as of September 30): 49

-Aggregate Value of Investors’ Holdings (as of September 30): $1.53 Billion

The number of hedge funds from our database with positions in Vulcan Materials Company (NYSE:VMC) increased to 49 from 39 during the September quarter, while the value of these positions grew to $1.53 billion from $1.49 billion quarter-over-quarter. Nearly 13% of the company’s outstanding common stock was owned by these 49 hedge fund firms on September 30. The producer of construction aggregates, asphalt mix and ready-mixed concrete has seen its shares gain 57% in 2015, mainly thanks to the robust construction activity across the company’s end markets. Vulcan’s financial performance is strongly correlated with population growth, household formation and employment, so the company should be able to keep delivering massive growth in the upcoming quarters if U.S economy continues to hum. Daniel S. Och’s OZ Management was one of the hedge funds that added Vulcan Materials Company (NYSE:VMC) to its portfolio during the latest quarter, holding 1.96 million shares as of September 30.

Citizens Financial Group Inc. (NYSE:CFG)

-Investors with Long Positions (as of September 30): 56

-Aggregate Value of Investors’ Holdings (as of September 30): $1.55 Billion

18 more hedge funds had Citizens Financial Group Inc. (NYSE:CFG) in their portfolios at the end of the third quarter than at the end of the second quarter. The 56 smart money investors with positions in CFG held 12.30% of the company’s common stock at the end of September, while the value of these positions increased to $1.55 billion from $1.21 billion quarter-over-quarter. It’s the third straight quarter that CFG has witnessed a large swing in hedge fund sentiment, which swung upwards in the first quarter before taking a big hit in the second quarter.

The business of this financial institution is primarily affected by both national and regional economic conditions. Specifically, the interest rate environment, the strength of the housing market, the U.S economic growth and the health of the U.S jobs market represent the main factors that influence the course of Citizens Financial Group’s business. The stock is up by 6% for the year and is trading at a relatively cheap trailing price-to-earnings ratio of 17.79, which is noticeably below the average of 23.18 for the S&P 500 Index. Ken Griffin’s Citadel Investment Group added a 10.65 million-share position in Citizens Financial Group Inc. (NYSE:CFG) to its portfolio during the third quarter.

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

J. M. Smucker Co (NYSE:SJM)

-Investors with Long Positions (as of September 30): 47

-Aggregate Value of Investors’ Holdings (as of September 30): $1.58 Billion

The number of smart money investors with stakes in J. M. Smucker Co (NYSE:SJM) stood at 47 at the end of the September, up by 17 quarter-over-quarter. These top money managers owned 11.50% of the company’s outstanding common stock on September 30. By the same token, the value of hedge funds’ stakes climbed to $1.58 billion from $1.01 billion during the three-month period. The food maker seems to be back on track, as the company’s sales have grown quite significantly over the past three quarters. The shares of the company have advanced by 19% since the beginning of the year, yet still look quite cheap at the moment if solely looking at J. M. Smucker’s trailing P/E ratio of just 17.79. Ricky Sandler’s Eminence Capital significantly increased its exposure to J. M. Smucker Co (NYSE:SJM) during the July-to-September period, ending the quarter with 1.31 million shares.

Nordstrom Inc. (NYSE:JWN)

-Investors with Long Positions (as of September 30): 38

-Aggregate Value of Investors’ Holdings (as of September 30): $840.88 Million

Nordstrom Inc. (NYSE:JWN) also received more attention from the hedge fund industry during the third quarter, as the number of top money managers invested in the company grew to 38 from 27 quarter-over-quarter. Nevertheless, the value of their investments shrank to $840.88 million from $945.62 million during the turbulent quarter. The fashion retailer experienced lower-than-expected growth in the third quarter, with its total net sales increasing by 6.6% year-over-year and comparable sales increasing by a mere 0.9%. Analysts may have had overly high expectations on the retail sector considering the tightening U.S labor market, but Nordstrom and other retailers failed to impress with their third quarter financial results. Nonetheless, smart money may be anticipating a strong holiday quarter for Nordstrom, which has cued their buying. Nordstrom’s stock, which has lost 28% year-to-date, is trading at an attractive trailing P/E ratio of 16.31 at the moment. Steven Cohen’s Point72 Asset Management was very bullish on Nordstrom Inc. (NYSE:JWN) during the third quarter, as it lifted its stake in the company to 857,100 shares.

WestRock Co (NYSE:WRK)

-Investors with Long Positions (as of September 30): 42

-Aggregate Value of Investors’ Holdings (as of September 30): $1.47 Billion

WestRock Co (NYSE:WRK) attracted the strongest investor interest in the mid-cap space during the quarter, as the number of hedge funds with long positions in the company climbed by 41 during the three-month period. These top money managers had amassed 10.90% of the company’s shares on September 30, while the value of their investments added up to $1.47 billion. The shares of WestRock began trading on the NYSE on July 2, following the completion of the merger between packaging materials makers Rock Tenn and MeadWestvaco. The freshly-created provider of packaging solutions and manufacturer of containerboard and paperboard has seen its stock decline by roughly 19% since its IPO, and shares are currently trading at a cheap trailing P/E ratio of 16.04. Larry Robbins’ Glenview Capital acquired a 4.39 million-share stake in WestRock Co (NYSE:WRK) during the September quarter.

Disclosure: None