Should You Avoid The Greenbrier Companies, Inc. (GBX)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The Greenbrier Companies, Inc. (NYSE:GBX).

Is The Greenbrier Companies, Inc. (NYSE:GBX) undervalued? Investors who are in the know are in a pessimistic mood. The number of long hedge fund bets dropped by 6 recently. Our calculations also showed that GBX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GBX was in 8 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with GBX positions at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action regarding The Greenbrier Companies, Inc. (NYSE:GBX).

What does smart money think about The Greenbrier Companies, Inc. (NYSE:GBX)?

At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in GBX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Greenbrier Companies, Inc. (NYSE:GBX) was held by Citadel Investment Group, which reported holding $6.8 million worth of stock at the end of September. It was followed by Impala Asset Management with a $4.8 million position. Other investors bullish on the company included Marshall Wace, Polaris Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to The Greenbrier Companies, Inc. (NYSE:GBX), around 0.35% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, designating 0.23 percent of its 13F equity portfolio to GBX.

Due to the fact that The Greenbrier Companies, Inc. (NYSE:GBX) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedgies who were dropping their full holdings last quarter. It’s worth mentioning that Mark Coe’s Intrinsic Edge Capital cut the biggest position of the 750 funds monitored by Insider Monkey, valued at an estimated $12 million in stock. Nick Niell’s fund, Arrowgrass Capital Partners, also sold off its stock, about $2.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Greenbrier Companies, Inc. (NYSE:GBX) but similarly valued. We will take a look at Boston Private Financial Holdings, Inc. (NASDAQ:BPFH), Infinera Corporation (NASDAQ:INFN), Materialise NV (NASDAQ:MTLS), and Re/Max Holdings Inc (NYSE:RMAX). All of these stocks’ market caps match GBX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $22 million in GBX’s case. Infinera Corporation (NASDAQ:INFN) is the most popular stock in this table. On the other hand Materialise NV (NASDAQ:MTLS) is the least popular one with only 2 bullish hedge fund positions. The Greenbrier Companies, Inc. (NYSE:GBX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GBX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GBX investors were disappointed as the stock returned -5.8% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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