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. Keeping this in mind, let’s take a look at whether TopBuild Corp (NYSE:BLD) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
TopBuild Corp (NYSE:BLD) was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. BLD shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. There were 21 hedge funds in our database with BLD positions at the end of the previous quarter. Our calculations also showed that BLD 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).
If you’d ask most traders, hedge funds are viewed as worthless, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation at the moment, We hone in on the masters of this club, around 850 funds. These money managers direct the majority of the hedge fund industry’s total asset base, and by shadowing their matchless picks, Insider Monkey has identified a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind we’re going to take a look at the new hedge fund action regarding TopBuild Corp (NYSE:BLD).
What have hedge funds been doing with TopBuild Corp (NYSE:BLD)?
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BLD over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in TopBuild Corp (NYSE:BLD) was held by Arrowstreet Capital, which reported holding $33.8 million worth of stock at the end of September. It was followed by Hawk Ridge Management with a $29.9 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and GLG Partners. In terms of the portfolio weights assigned to each position Hawk Ridge Management allocated the biggest weight to TopBuild Corp (NYSE:BLD), around 4.86% of its 13F portfolio. North Fourth Asset Management is also relatively very bullish on the stock, earmarking 0.9 percent of its 13F equity portfolio to BLD.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the most valuable position in TopBuild Corp (NYSE:BLD). Two Sigma Advisors had $6.5 million invested in the company at the end of the quarter. Anthony Joseph Vaccarino’s North Fourth Asset Management also initiated a $3.4 million position during the quarter. The other funds with new positions in the stock are Mark Coe’s Intrinsic Edge Capital, Dmitry Balyasny’s Balyasny Asset Management, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as TopBuild Corp (NYSE:BLD) but similarly valued. These stocks are MFA Financial, Inc. (NYSE:MFA), Rexnord Corp (NYSE:RXN), Viavi Solutions Inc (NASDAQ:VIAV), and Plains GP Holdings LP (NYSE:PAGP). This group of stocks’ market valuations are closest to BLD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MFA | 19 | 84511 | 0 |
| RXN | 25 | 334197 | 3 |
| VIAV | 37 | 420718 | 2 |
| PAGP | 26 | 366780 | 6 |
| Average | 26.75 | 301552 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $177 million in BLD’s case. Viavi Solutions Inc (NASDAQ:VIAV) is the most popular stock in this table. On the other hand MFA Financial, Inc. (NYSE:MFA) is the least popular one with only 19 bullish hedge fund positions. TopBuild Corp (NYSE:BLD) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately BLD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BLD were disappointed as the stock returned -26.2% 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 many of these stocks already outperformed the market so far this year.
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.
