Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Argan, Inc. (NYSE:AGX)? The smart money sentiment can provide an answer to this question.
Is AGX a good stock to buy now? The best stock pickers were taking an optimistic view. The number of bullish hedge fund positions went up by 2 recently. Argan, Inc. (NYSE:AGX) was in 13 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 21. Our calculations also showed that AGX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 11 hedge funds in our database with AGX positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Peter Rathjens Arrowstreet Capital 394
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's take a glance at the key hedge fund action regarding Argan, Inc. (NYSE:AGX).
Do Hedge Funds Think AGX Is A Good Stock To Buy Now?
At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in AGX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Argan, Inc. (NYSE:AGX), with a stake worth $20.7 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $13.8 million. Arrowstreet Capital, AltraVue Capital, and Welch Capital Partners 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 AltraVue Capital allocated the biggest weight to Argan, Inc. (NYSE:AGX), around 2.47% of its 13F portfolio. Welch Capital Partners is also relatively very bullish on the stock, setting aside 1.14 percent of its 13F equity portfolio to AGX.
As industrywide interest jumped, specific money managers have jumped into Argan, Inc. (NYSE:AGX) headfirst. Athanor Capital, managed by Parvinder Thiara, initiated the biggest position in Argan, Inc. (NYSE:AGX). Athanor Capital had $0.4 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $0.3 million position during the quarter. The only other fund with a new position in the stock is Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Argan, Inc. (NYSE:AGX) but similarly valued. We will take a look at BJ's Restaurants, Inc. (NASDAQ:BJRI), Photronics, Inc. (NASDAQ:PLAB), American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), Nexgen Energy Ltd. (NYSE:NXE), Scorpio Tankers Inc. (NYSE:STNG), TPG RE Finance Trust, Inc. (NYSE:TRTX), and Hibbett Sports, Inc. (NASDAQ:HIBB). This group of stocks' market valuations resemble AGX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BJRI,14,43978,2 PLAB,20,74020,-1 AXL,22,59546,2 NXE,6,28476,-1 STNG,14,30314,-4 TRTX,13,74230,-1 HIBB,21,181894,0 Average,15.7,70351,-0.4 [/table]
As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $61 million in AGX's case. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) is the most popular stock in this table. On the other hand Nexgen Energy Ltd. (NYSE:NXE) is the least popular one with only 6 bullish hedge fund positions. Argan, Inc. (NYSE:AGX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AGX is 47.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on AGX as the stock returned 20.9% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
