Should You Buy Argan, Inc. (AGX)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Argan, Inc. (NYSE:AGX) to find out whether it was one of their high conviction long-term ideas.

Argan, Inc. (NYSE:AGX) was in 17 hedge funds’ portfolios at the end of September. AGX shareholders have witnessed an increase in hedge fund sentiment of late. There were 15 hedge funds in our database with AGX holdings 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 Harmonic Inc (NASDAQ:HLIT), GasLog Partners LP (NYSE:GLOP), and Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) to gather more data points.

To the average investor there are a lot of gauges stock market investors use to grade publicly traded companies. Two of the best gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the elite investment managers can outperform the S&P 500 by a significant margin (see the details here).

Keeping this in mind, we’re going to take a look at the new action surrounding Argan, Inc. (NYSE:AGX).

How have hedgies been trading Argan, Inc. (NYSE:AGX)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 13% from the second quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jim Simons’s Renaissance Technologies has the most valuable position in Argan, Inc. (NYSE:AGX), worth close to $27.3 million, amounting to 0.1% of its total 13F portfolio. Coming in second is Huber Capital Management, led by Joe Huber, holding a $16.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other peers that are bullish contain Cliff Asness’s AQR Capital Management, David Brown’s Hawk Ridge Management and Richard Driehaus’s Driehaus Capital.

Now, key money managers were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, established the most outsized position in Argan, Inc. (NYSE:AGX). According to its latest 13F filing, the fund had $3.6 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also initiated a $0.9 million position during the quarter. The following funds were also among the new AGX investors: Joel Greenblatt’s Gotham Asset Management and Matthew Tewksbury’s Stevens Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Argan, Inc. (NYSE:AGX) but similarly valued. These stocks are Harmonic Inc (NASDAQ:HLIT), GasLog Partners LP (NYSE:GLOP), Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), and Tronox Ltd (NYSE:TROX). This group of stocks’ market values are closest to AGX’s market value.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $66 million in AGX’s case. Tronox Ltd (NYSE:TROX) is the most popular stock in this table. On the other hand GasLog Partners LP (NYSE:GLOP) is the least popular one with only 4 bullish hedge fund positions. Argan, Inc. (NYSE:AGX) is clearly the star of this group, having also attracted a large amount of hedgies’ funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.