How do you pick the next stock to invest in? One way would be to spend hours 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 RR Donnelley & Sons Co (NASDAQ:RRD).
Is RR Donnelley & Sons Co (NASDAQ:RRD) a buy right now? The smart money is in an optimistic mood. The number of bullish hedge fund positions increased by 4 recently. RRD was in 25 hedge funds’ portfolios at the end of the third quarter of 2015. There were 21 hedge funds in our database with RRD positions at the end of the previous quarter. At the end of this article we will also compare RRD to other stocks, including FEI Company (NASDAQ:FEIC), Catalent Inc (NYSE:CTLT), and HSN, Inc. (NASDAQ:HSNI) to get a better sense of its popularity.
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Follow Rr Donnelley & Sons Co (NASDAQ:RRD)
In the financial world there are a large number of indicators investors have at their disposal to grade publicly traded companies. A duo of the less known indicators are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the best fund managers can trounce the market by a very impressive amount (see the details here).
Now, let’s take a look at the new action regarding RR Donnelley & Sons Co (NASDAQ:RRD).
Hedge fund activity in RR Donnelley & Sons Co (NASDAQ:RRD)
At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 19% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Elm Ridge Capital, managed by Ron Gutfleish, holds the largest position in RR Donnelley & Sons Co (NASDAQ:RRD). The fund has a $35.2 million position in the stock, comprising 5.1% of its 13F portfolio. The second most bullish fund manager is Herring Creek Capital, led by Steve Galbraith, holding a $20.4 million position; the fund has 5.6% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass David Dreman’s Dreman Value Management, and Cliff Asness’s AQR Capital Management.
As one would reasonably expect, key money managers were leading the bulls’ herd. Renaissance Technologies, managed by Jim Simons, established the most outsized position in RR Donnelley & Sons Co (NASDAQ:RRD). The fund had reported a $5.6 million investment in the company at the end of the quarter. Neil Chriss’s Hutchin Hill Capital also made a $3.2 million investment in the stock during the quarter. The other funds with brand new RRD positions are Edward Goodnow’s Goodnow Investment Group, Andrew Grossman and Michael Levitt’s LG Capital Management, and Ray Dalio’s Bridgewater Associates.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as RR Donnelley & Sons Co (NASDAQ:RRD) but similarly valued. These stocks are FEI Company (NASDAQ:FEIC), Catalent Inc (NYSE:CTLT), HSN, Inc. (NASDAQ:HSNI), and New Residential Investment Corp (NYSE:NRZ). This group of stocks’ market values are closest to RRD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FEIC | 15 | 123716 | 2 |
| CTLT | 14 | 46040 | -3 |
| HSNI | 10 | 58542 | -10 |
| NRZ | 33 | 674420 | -5 |
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $112 million in RRD’s case. New Residential Investment Corp (NYSE:NRZ) is the most popular stock in this table, while HSN, Inc. (NASDAQ:HSNI) is at the other end of the specter with only 10 bullish hedge fund positions. RR Donnelley & Sons Co (NASDAQ:RRD) is not the most popular stock in this group, but hedge fund interest is still above average. While this is a slightly positive signal, we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NRZ might be a better candidate to consider a long position.
