Is Eagle Materials, Inc. (EXP) A Good Stock To Buy?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Eagle Materials, Inc. (NYSE:EXP).

Hedge fund interest in Eagle Materials, Inc. (NYSE:EXP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare EXP to other stocks including Echostar Corporation (NASDAQ:SATS), BWX Technologies Inc (NYSE:BWXT), and Santander Consumer USA Holdings Inc (NYSE:SC) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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With all of this in mind, let’s take a look at the key action surrounding Eagle Materials, Inc. (NYSE:EXP).

What have hedge funds been doing with Eagle Materials, Inc. (NYSE:EXP)?

Heading into the fourth quarter of 2016, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from one quarter earlier. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Gates Capital Management, run by Jeffrey Gates, holds the largest position in Eagle Materials, Inc. (NYSE:EXP). According to its latest 13F filing, Gates Capital has a $107.5 million position in the stock, comprising 3.9% of its 13F portfolio. The second most bullish fund manager is Phill Gross and Robert Atchinson of Adage Capital Management, with a $67.2 million bet; 0.2% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish comprise Paul Reeder and Edward Shapiro’s PAR Capital Management, Clint Murray’s Lodge Hill Capital and Martin D. Sass’s MD Sass.

Due to the fact that Eagle Materials, Inc. (NYSE:EXP) has witnessed no change in interest from the smart money, we must take a look at a specific group of funds who sold off their entire stakes heading into Q4. Intriguingly, Bruce Kovner’s Caxton Associates LP said goodbye to the largest investment of the 700 funds followed by Insider Monkey, totaling an estimated $13.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $7.7 million worth of EXP shares. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Eagle Materials, Inc. (NYSE:EXP). We will take a look at Echostar Corporation (NASDAQ:SATS), BWX Technologies Inc (NYSE:BWXT), Santander Consumer USA Holdings Inc (NYSE:SC), and Microsemi Corporation (NASDAQ:MSCC). This group of stocks’ market valuations resemble EXP’s market valuation.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $477 million in EXP’s case. BWX Technologies Inc (NYSE:BWXT) is the most popular stock in this table. On the other hand Microsemi Corporation (NASDAQ:MSCC) is the least popular one with only 25 bullish hedge fund positions. Eagle Materials, Inc. (NYSE:EXP) 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. In this regard BWXT might be a better candidate to consider a long position.

Disclosure: none.