PPG Industries, Inc. (NYSE:PPG)‘s stock fell by more than 3% today following the company’s release of its second quarter financial results, which marked a top line miss, but a beat on the bottom line. The EPS of $1.67 was $0.03 higher than expectations, and was an all-time record high for the company, while revenues of $4.1 billion were $60 million short of estimates despite representing a 0.5% increase on a year-over-year basis. Sales growth was lower owing to macroeconomic weakness, especially in South America. According to CEO Charles E. Bunch sales growth improved in Europe and the U.S, and moderated in Asia. Overall, both the coatings and the glass segments managed to post strong results despite currency headwinds.
Smart money has shown considerable enthusiasm for PPG Industries, Inc. (NYSE:PPG) lately. The number of hedge funds, among those that we track, with investments in the $31.97 billion manufacturer of coatings and glass products increased to 46 at the end of the first quarter compared to 39 at the end of last year. The corresponding rise in total invested capital was to $2.44 billion from $2.39 billion, even though the stock price depreciated by nearly 3% during this period. They were rewarded with a stock that gained about 1.7% in the second quarter.
Why do we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 139% over the last 34 months and outperformed the S&P 500 Index by 81 percentage points (see the details here).
Besides hedge fund sentiment, another useful indicator for a stock’s future performance is the insider activity surrounding it, hence we keep a close eye on such transactions. However, an investor should bear in mind that insider purchases are a much stronger indicator than insider sales, which can occur due to wide variety of reasons and are not just a sign of a sinking ship. As far as PPG Industries, Inc. (NYSE:PPG) is concerned, no insider purchases have been detected so far this year, but two prominent insider sales include that by Viktoras Sekmakas, Executive Vice President of the company, who sold about 19,300 shares this year, and CEO Bunch, who has disposed of about 179,000 shares in the same period.
Let us now take a closer look at which segments of the hedge fund industry are particularly excited about PPG Industries, Inc. (NYSE:PPG)’s prospects.
Hedge fund activity in PPG Industries, Inc. (NYSE:PPG)
At the end of the first quarter, a total of 46 of the hedge funds tracked by Insider Monkey were long in this stock, compared to 39 in the previous quarter. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings considerably.
According to hedge fund experts at Insider Monkey, Ken Griffin‘s Citadel Investment Group had the biggest position in PPG Industries, Inc. (NYSE:PPG), worth close to $314.5 million, accounting for 0.4% of its total 13F portfolio. On Citadel Investment Group’s heels was OZ Management, led by Daniel S. Och, holding a $308.4 million position; 1% of its 13F portfolio was allocated to the stock. Other hedge funds that were bullish encompass Cliff Asness‘ AQR Capital Management, Zach Schreiber’s Point State Capital, and Bain Capital’s Brookside Capital.
As industrywide interest jumped, specific money managers were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, created the biggest position in PPG Industries, Inc. (NYSE:PPG). Renaissance Technologies had $92.2 million invested in the company at the end of the March quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $36.2 million position during the same quarter. The other funds with brand new PPG positions were Matthew Tewksbury’s Stevens Capital Management, Wayne Cooperman’s Cobalt Capital Management, and Robert Vollero and Gentry T. Beach’s Vollero Beach Capital Partners.
Taking into account an overall good earnings report and positive hedge fund sentiment, we recommend a buy for the stock today, post earnings dip.
Disclosure: None
