Should You Avoid TopBuild Corp (BLD)?

The 700+ hedge funds and money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund positions. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards TopBuild Corp (NYSE:BLD).

TopBuild Corp (NYSE:BLD) has seen a decrease in enthusiasm from smart money in recent months. BLD was in 21 hedge funds’ portfolios at the end of the third quarter of 2016. There were 26 hedge funds in our database with BLD positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Allegheny Technologies Incorporated (NYSE:ATI), Imperva Inc (NYSE:IMPV), and Potlatch Corporation (NASDAQ:PCH) to gather more data points.

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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Now, let’s take a glance at the latest action encompassing TopBuild Corp (NYSE:BLD).

Hedge fund activity in TopBuild Corp (NYSE:BLD)

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, down 19% from the second quarter of 2016. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Thomas E. Claugus’s GMT Capital has the largest position in TopBuild Corp (NYSE:BLD), worth close to $25.6 million, amounting to 0.5% of its total 13F portfolio. Coming in second is Three Corner Global Investors, led by Gunnar Overstrom, holding a $22.7 million position; 8.6% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions encompass Cliff Asness’s AQR Capital Management, Scott Phillips’s Latimer Light Capital and Peter Schliemann’s Rutabaga Capital Management.

Because TopBuild Corp (NYSE:BLD) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of fund managers that decided to sell off their positions entirely in the third quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management cut the biggest position of all the hedgies monitored by Insider Monkey, worth close to $17.2 million in stock, and Richard S. Meisenberg’s ACK Asset Management was right behind this move, as the fund cut about $10.5 million worth of BLD shares. These transactions are interesting, as total hedge fund interest dropped by 5 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TopBuild Corp (NYSE:BLD) but similarly valued. These stocks are Allegheny Technologies Incorporated (NYSE:ATI), Imperva Inc (NYSE:IMPV), Potlatch Corporation (NASDAQ:PCH), and WNS (Holdings) Limited (ADR) (NYSE:WNS). This group of stocks’ market valuations are closest to BLD’s market valuation.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $183 million in BLD’s case. Imperva Inc (NYSE:IMPV) is the most popular stock in this table. On the other hand WNS (Holdings) Limited (ADR) (NYSE:WNS) is the least popular one with only 11 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IMPV might be a better candidate to consider a long position.

Disclosure: none.