How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding TopBuild Corp (NYSE:BLD) and determine whether hedge funds had an edge regarding this stock.
TopBuild Corp (NYSE:BLD) investors should pay attention to an increase in hedge fund interest recently. TopBuild Corp (NYSE:BLD) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 20 hedge funds in our database with BLD holdings at the end of March. Our calculations also showed that BLD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
At the moment there are plenty of metrics stock market investors can use to analyze stocks. A duo of the most under-the-radar metrics are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can outperform their index-focused peers by a healthy margin (see the details here).
Israel Englander of Millennium Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to analyze the new hedge fund action surrounding TopBuild Corp (NYSE:BLD).
What does smart money think about TopBuild Corp (NYSE:BLD)?
Heading into the third quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in BLD over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in TopBuild Corp (NYSE:BLD), worth close to $23.9 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Columbus Circle Investors, managed by Principal Global Investors, which holds a $19.5 million position; 0.8% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management and Gregg Moskowitz’s Interval Partners. In terms of the portfolio weights assigned to each position SG Capital Management allocated the biggest weight to TopBuild Corp (NYSE:BLD), around 0.88% of its 13F portfolio. North Fourth Asset Management is also relatively very bullish on the stock, dishing out 0.85 percent of its 13F equity portfolio to BLD.
Consequently, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the most valuable position in TopBuild Corp (NYSE:BLD). Millennium Management had $9.5 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $9 million position during the quarter. The following funds were also among the new BLD investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Anthony Joseph Vaccarino’s North Fourth Asset Management, and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as TopBuild Corp (NYSE:BLD) but similarly valued. We will take a look at Nexstar Media Group, Inc. (NASDAQ:NXST), InVitae Corporation (NYSE:NVTA), frontdoor, inc. (NASDAQ:FTDR), LendingTree, Inc (NASDAQ:TREE), Hexcel Corporation (NYSE:HXL), SL Green Realty Corp (NYSE:SLG), and Cannae Holdings, Inc. (NYSE:CNNE). This group of stocks’ market caps resemble BLD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NXST | 42 | 822223 | 1 |
| NVTA | 16 | 769078 | 6 |
| FTDR | 41 | 746277 | 8 |
| TREE | 15 | 102759 | -6 |
| HXL | 18 | 230973 | -9 |
| SLG | 26 | 258760 | 3 |
| CNNE | 43 | 596426 | 23 |
| Average | 28.7 | 503785 | 3.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $504 million. That figure was $141 million in BLD’s case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand LendingTree, Inc (NASDAQ:TREE) is the least popular one with only 15 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. Our overall hedge fund sentiment score for BLD is 66.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on BLD as the stock returned 39.5% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
