Were Hedge Funds Right About Brady Corp (BRC)?
Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Brady Corp (NYSE:BRC) to find out whether there were any major changes in hedge funds' views.
Is Brady Corp (NYSE:BRC) a buy, sell, or hold? Investors who are in the know were buying. The number of bullish hedge fund bets improved by 1 in recent months. Brady Corp (NYSE:BRC) was in 16 hedge funds' portfolios at the end of March. The all time high for this statistic is 20. Our calculations also showed that BRC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 15 hedge funds in our database with BRC positions at the end of the fourth quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Bruce Kovner of Caxton Associates LP
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we're going to go over the key hedge fund action encompassing Brady Corp (NYSE:BRC).
Do Hedge Funds Think BRC Is A Good Stock To Buy Now?
At first quarter's end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BRC over the last 23 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in Brady Corp (NYSE:BRC) was held by Renaissance Technologies, which reported holding $88.9 million worth of stock at the end of December. It was followed by Ariel Investments with a $30.7 million position. Other investors bullish on the company included Citadel Investment Group, Holocene Advisors, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Brady Corp (NYSE:BRC), around 0.3% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to BRC.
As one would reasonably expect, specific money managers have been driving this bullishness. Tudor Investment Corp, managed by Paul Tudor Jones, established the most valuable position in Brady Corp (NYSE:BRC). Tudor Investment Corp had $1.1 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $0.7 million position during the quarter. The other funds with brand new BRC positions are Bruce Kovner's Caxton Associates LP, Qing Li's Sciencast Management, and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Brady Corp (NYSE:BRC) but similarly valued. These stocks are Greif, Inc. (NYSE:GEF), Independent Bank Corp (NASDAQ:INDB), Axos Financial, Inc. (NYSE:AX), Fulton Financial Corp (NASDAQ:FULT), INMODE LTD. (NASDAQ:INMD), Owens & Minor, Inc. (NYSE:OMI), and Intra-Cellular Therapies Inc (NASDAQ:ITCI). This group of stocks' market caps resemble BRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GEF,13,127687,0 INDB,11,20641,4 AX,13,36746,0 FULT,7,37687,-8 INMD,23,214212,0 OMI,16,272829,-4 ITCI,15,256287,-8 Average,14,138013,-2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $137 million in BRC's case. INMODE LTD. (NASDAQ:INMD) is the most popular stock in this table. On the other hand Fulton Financial Corp (NASDAQ:FULT) is the least popular one with only 7 bullish hedge fund positions. Brady Corp (NYSE:BRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BRC is 58.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately BRC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on BRC were disappointed as the stock returned 2.3% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
