We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether RPM International Inc. (NYSE:RPM) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is RPM International Inc. (NYSE:RPM) going to take off soon? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund bets decreased by 3 lately. Our calculations also showed that RPM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the latest hedge fund action encompassing RPM International Inc. (NYSE:RPM).
How are hedge funds trading RPM International Inc. (NYSE:RPM)?
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RPM over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in RPM International Inc. (NYSE:RPM), which was worth $80.6 million at the end of the third quarter. On the second spot was Hound Partners which amassed $74 million worth of shares. Samlyn Capital, Citadel Investment Group, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to RPM International Inc. (NYSE:RPM), around 5.89% of its 13F portfolio. Hound Partners is also relatively very bullish on the stock, setting aside 5.13 percent of its 13F equity portfolio to RPM.
Due to the fact that RPM International Inc. (NYSE:RPM) has faced falling interest from the smart money, it’s safe to say that there was a specific group of hedge funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Jeffrey Smith’s Starboard Value LP dropped the biggest stake of all the hedgies watched by Insider Monkey, comprising about $22.3 million in stock. Louis Bacon’s fund, Moore Global Investments, also said goodbye to its stock, about $6.5 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as RPM International Inc. (NYSE:RPM) but similarly valued. We will take a look at CPFL Energia S.A. (NYSE:CPL), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), American Financial Group, Inc. (NYSE:AFG), and Vereit Inc (NYSE:VER). This group of stocks’ market valuations resemble RPM’s market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPL,4,15007,1 NBIX,42,1229214,-3 AFG,25,387186,-2 VER,28,549943,-9 Average,24.75,545338,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $545 million. That figure was $301 million in RPM’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 4 bullish hedge fund positions. RPM International Inc. (NYSE:RPM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on RPM, though not to the same extent, as the stock returned -24.3% during the first two and a half months of 2020 (through March 16th) and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.