Hedge Funds Aren’t Crazy About ABM Industries, Inc. (ABM) Anymore

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: ABM Industries, Inc. (NYSE:ABM).

Is ABM Industries, Inc. (NYSE:ABM) undervalued? Money managers are in a bearish mood. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings were cut by 2 in recent months. There were 13 hedge funds in our database with ABM holdings at the end of the 2016 third quarter. At the end of this article we will also compare ABM to other stocks including Entegris Inc (NASDAQ:ENTG), Platform Specialty Products Corp (NYSE:PAH), and Silicon Laboratories (NASDAQ:SLAB) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s analyze the key action surrounding ABM Industries, Inc. (NYSE:ABM).

What does the smart money think about ABM Industries, Inc. (NYSE:ABM)?

At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 13% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards ABM over the last 5 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Mariko Gordon’s Daruma Asset Management has the biggest position in ABM Industries, Inc. (NYSE:ABM), worth close to $47.1 million, comprising 2.9% of its total 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $30.5 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers that hold long positions encompass Martin Whitman’s Third Avenue Management, Israel Englander’s Millennium Management and Joel Greenblatt’s Gotham Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dropped their positions entirely. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the biggest position of all the investors tracked by Insider Monkey, valued at an estimated $0.6 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also said goodbye to its stock, about $0.5 million worth of ABM shares.

Let’s now review hedge fund activity in other stocks similar to ABM Industries, Inc. (NYSE:ABM). We will take a look at Entegris Inc (NASDAQ:ENTG), Platform Specialty Products Corp (NYSE:PAH), Silicon Laboratories (NASDAQ:SLAB), and Hawaiian Holdings, Inc. (NASDAQ:HA). This group of stocks’ market valuations match ABM’s market valuation.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $440 million. That figure was $94 million in ABM’s case. Platform Specialty Products Corp (NYSE:PAH) is the most popular stock in this table. On the other hand Silicon Laboratories (NASDAQ:SLAB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks ABM Industries, Inc. (NYSE:ABM) is even less popular than SLAB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: none.