Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards RPM International Inc. (NYSE:RPM).
Is RPM stock a buy? The smart money was in a pessimistic mood. The number of long hedge fund bets decreased by 1 recently. RPM International Inc. (NYSE:RPM) was in 25 hedge funds' portfolios at the end of December. The all time high for this statistic is 34. Our calculations also showed that RPM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 26 hedge funds in our database with RPM holdings at the end of September.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Richard Chilton of Chilton Investment Company
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind we're going to view the key hedge fund action regarding RPM International Inc. (NYSE:RPM).
Do Hedge Funds Think RPM Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 31 hedge funds with a bullish position in RPM a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Renaissance Technologies has the number one position in RPM International Inc. (NYSE:RPM), worth close to $24.5 million, corresponding to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Point72 Asset Management, managed by Steve Cohen, which holds a $11.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions include Michael Cowley's Sandbar Asset Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Richard Chilton's Chilton Investment Company. In terms of the portfolio weights assigned to each position Sandbar Asset Management allocated the biggest weight to RPM International Inc. (NYSE:RPM), around 1.75% of its 13F portfolio. Matarin Capital is also relatively very bullish on the stock, designating 0.27 percent of its 13F equity portfolio to RPM.
Because RPM International Inc. (NYSE:RPM) has experienced declining sentiment from the smart money, logic holds that there was a specific group of funds that slashed their full holdings in the fourth quarter. Interestingly, Richard Schimel and Lawrence Sapanski's Cinctive Capital Management dumped the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at about $2.4 million in stock. Peter Muller's fund, PDT Partners, also dumped its stock, about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds in the fourth quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as RPM International Inc. (NYSE:RPM) but similarly valued. These stocks are CenterPoint Energy, Inc. (NYSE:CNP), Icahn Enterprises LP (NASDAQ:IEP), Zai Lab Limited (NASDAQ:ZLAB), Universal Health Services, Inc. (NYSE:UHS), Cree, Inc. (NASDAQ:CREE), Medical Properties Trust, Inc. (NYSE:MPW), and Nordson Corporation (NASDAQ:NDSN). This group of stocks' market caps are closest to RPM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNP,30,437880,10 IEP,4,11272038,0 ZLAB,30,588052,2 UHS,39,743837,5 CREE,33,1070871,3 MPW,16,258773,-5 NDSN,21,70728,0 Average,24.7,2063168,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $2063 million. That figure was $102 million in RPM's case. Universal Health Services, Inc. (NYSE:UHS) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) 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 overall hedge fund sentiment score for RPM is 56.1. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately RPM wasn't nearly as popular as these 30 stocks and hedge funds that were betting on RPM were disappointed as the stock returned 3.4% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Get real-time email alerts: Follow Rpm International Inc (NYSE:RPM)
Disclosure: None. This article was originally published at Insider Monkey.