Was The Smart Money Right About Crowding Into Vulcan Materials Company (VMC)?

Abigail Fisher
·6 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Vulcan Materials Company (NYSE:VMC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Vulcan Materials Company (NYSE:VMC) has experienced an increase in support from the world's most elite money managers lately. Vulcan Materials Company (NYSE:VMC) was in 51 hedge funds' portfolios at the end of June. The all time high for this statistics is 57. Our calculations also showed that VMC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

David E. Shaw of D.E. Shaw
David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let's check out the latest hedge fund action encompassing Vulcan Materials Company (NYSE:VMC).

What have hedge funds been doing with Vulcan Materials Company (NYSE:VMC)?

At the end of June, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. By comparison, 52 hedge funds held shares or bullish call options in VMC a year ago. So, let's examine 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, Patrick Degorce's Theleme Partners has the largest position in Vulcan Materials Company (NYSE:VMC), worth close to $142.7 million, accounting for 6.7% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $106.9 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish contain Panayotis Takis Sparaggis's Alkeon Capital Management, Suzi Nutton's Lansdowne Partners and Wallace Weitz's Wallace R. Weitz & Co.. In terms of the portfolio weights assigned to each position Theleme Partners allocated the biggest weight to Vulcan Materials Company (NYSE:VMC), around 6.73% of its 13F portfolio. Mountaineer Partners Management is also relatively very bullish on the stock, designating 5.71 percent of its 13F equity portfolio to VMC.

Now, some big names have been driving this bullishness. Theleme Partners, managed by Patrick Degorce, assembled the most outsized position in Vulcan Materials Company (NYSE:VMC). Theleme Partners had $142.7 million invested in the company at the end of the quarter. Suzi Nutton's Lansdowne Partners also initiated a $90.1 million position during the quarter. The following funds were also among the new VMC investors: Sharlyn C. Heslam's Stockbridge Partners, Lee Hicks and Jan Koerner's Park Presidio Capital, and Israel Englander's Millennium Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Vulcan Materials Company (NYSE:VMC) but similarly valued. These stocks are Telefonica Brasil SA (NYSE:VIV), Quest Diagnostics Incorporated (NYSE:DGX), Cardinal Health, Inc. (NYSE:CAH), Tractor Supply Company (NASDAQ:TSCO), CBRE Group, Inc. (NYSE:CBRE), BioNTech SE (NASDAQ:BNTX), and The Cooper Companies, Inc. (NYSE:COO). This group of stocks' market valuations are closest to VMC's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIV,12,99788,4 DGX,46,804000,8 CAH,49,956785,5 TSCO,38,828499,1 CBRE,29,1442786,-4 BNTX,15,367554,9 COO,34,876136,9 Average,31.9,767935,4.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $768 million. That figure was $880 million in VMC's case. Cardinal Health, Inc. (NYSE:CAH) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Vulcan Materials Company (NYSE:VMC) is more popular among hedge funds. Our overall hedge fund sentiment score for VMC is 83.8. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on VMC as the stock returned 25.8% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.

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