Is CSWI A Good Stock To Buy Now?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about CSW Industrials, Inc. (NASDAQ:CSWI) in this article.

Is CSWI a good stock to buy now? CSW Industrials, Inc. (NASDAQ:CSWI) was in 16 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 20. CSWI investors should pay attention to a decrease in hedge fund sentiment of late. There were 19 hedge funds in our database with CSWI positions at the end of the second quarter. Our calculations also showed that CSWI isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to analyze the recent hedge fund action encompassing CSW Industrials, Inc. (NASDAQ:CSWI).

Do Hedge Funds Think CSWI Is A Good Stock To Buy Now?

At third quarter’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in CSWI over the last 21 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in CSW Industrials, Inc. (NASDAQ:CSWI), which was worth $8.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $3.4 million worth of shares. Moerus Capital Management, AQR Capital Management, and Citadel Investment Group 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 Moerus Capital Management allocated the biggest weight to CSW Industrials, Inc. (NASDAQ:CSWI), around 1.25% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.6 percent of its 13F equity portfolio to CSWI.

Due to the fact that CSW Industrials, Inc. (NASDAQ:CSWI) has witnessed declining sentiment from hedge fund managers, logic holds that there lies a certain “tier” of fund managers that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners dropped the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $0.6 million in stock. Brian C. Freckmann’s fund, Lyon Street Capital, also cut its stock, about $0.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to CSW Industrials, Inc. (NASDAQ:CSWI). These stocks are Urban Edge Properties (NYSE:UE), Banner Corporation (NASDAQ:BANR), The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), Repare Therapeutics Inc. (NASDAQ:RPTX), Tronox Holdings Plc (NYSE:TROX), Enerpac Tool Group Corp. (NYSE:EPAC), and Radware Ltd. (NASDAQ:RDWR). This group of stocks’ market values match CSWI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $29 million in CSWI’s case. Urban Edge Properties (NYSE:UE) is the most popular stock in this table. On the other hand Radware Ltd. (NASDAQ:RDWR) is the least popular one with only 10 bullish hedge fund positions. CSW Industrials, Inc. (NASDAQ:CSWI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSWI is 56. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on CSWI as the stock returned 43.9% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.