We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards Beacon Roofing Supply, Inc. (NASDAQ:BECN).
Is Beacon Roofing Supply, Inc. (NASDAQ:BECN) undervalued? Money managers are in a bearish mood. The number of bullish hedge fund bets shrunk by 1 lately. Our calculations also showed that BECN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Harold Levy of Iridian Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the fresh hedge fund action encompassing Beacon Roofing Supply, Inc. (NASDAQ:BECN).
What have hedge funds been doing with Beacon Roofing Supply, Inc. (NASDAQ:BECN)?
Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in BECN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Iridian Asset Management held the most valuable stake in Beacon Roofing Supply, Inc. (NASDAQ:BECN), which was worth $100 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $80.9 million worth of shares. Fisher Asset Management, Millennium Management, and Soapstone Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Soapstone Capital allocated the biggest weight to Beacon Roofing Supply, Inc. (NASDAQ:BECN), around 11.38% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, earmarking 1.64 percent of its 13F equity portfolio to BECN.
Because Beacon Roofing Supply, Inc. (NASDAQ:BECN) has faced bearish sentiment from hedge fund managers, it’s easy to see that there was a specific group of fund managers who sold off their entire stakes in the third quarter. At the top of the heap, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors cut the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $2.6 million in stock, and Julian Allen’s Spitfire Capital was right behind this move, as the fund sold off about $1.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Beacon Roofing Supply, Inc. (NASDAQ:BECN). These stocks are Bed Bath & Beyond Inc. (NASDAQ:BBBY), Norbord Inc. (NYSE:OSB), EVO Payments, Inc. (NASDAQ:EVOP), and PriceSmart, Inc. (NASDAQ:PSMT). This group of stocks’ market values match BECN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BBBY | 34 | 484497 | 7 |
| OSB | 16 | 51708 | 9 |
| EVOP | 22 | 89278 | 7 |
| PSMT | 18 | 51318 | 8 |
| Average | 22.5 | 169200 | 7.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $347 million in BECN’s case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 16 bullish hedge fund positions. Beacon Roofing Supply, Inc. (NASDAQ:BECN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately BECN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BECN investors were disappointed as the stock returned -49.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
