Were Hedge Funds Right About Selling ABM Industries, Inc. (ABM)?

·6 min read

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about ABM Industries, Inc. (NYSE:ABM).

ABM Industries, Inc. (NYSE:ABM) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 21. ABM investors should be aware of a decrease in hedge fund interest in recent months. There were 20 hedge funds in our database with ABM holdings at the end of December. Our calculations also showed that ABM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT
AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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. Now we're going to check out the fresh hedge fund action surrounding ABM Industries, Inc. (NYSE:ABM).

Do Hedge Funds Think ABM Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in ABM a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in ABM Industries, Inc. (NYSE:ABM) was held by Renaissance Technologies, which reported holding $16.3 million worth of stock at the end of December. It was followed by Leonard Green & Partners with a $5.1 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to ABM Industries, Inc. (NYSE:ABM), around 0.57% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to ABM.

Because ABM Industries, Inc. (NYSE:ABM) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers who were dropping their full holdings last quarter. It's worth mentioning that Israel Englander's Millennium Management dumped the biggest stake of the 750 funds watched by Insider Monkey, totaling about $5.1 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dumped about $0.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ABM Industries, Inc. (NYSE:ABM) but similarly valued. We will take a look at Copa Holdings, S.A. (NYSE:CPA), 3D Systems Corporation (NYSE:DDD), Visteon Corp (NASDAQ:VC), Instil Bio, Inc. (NASDAQ:TIL), BancorpSouth Bank (NYSE:BXS), Utz Brands Inc (NYSE:UTZ), and Equity Commonwealth (NYSE:EQC). This group of stocks' market values resemble ABM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPA,18,213264,-3 DDD,16,315553,1 VC,20,196777,-3 TIL,21,778526,21 BXS,12,66932,-3 UTZ,13,110348,-2 EQC,21,183175,3 Average,17.3,266368,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $40 million in ABM's case. Instil Bio, Inc. (NASDAQ:TIL) is the most popular stock in this table. On the other hand BancorpSouth Bank (NYSE:BXS) is the least popular one with only 12 bullish hedge fund positions. ABM Industries, Inc. (NYSE:ABM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ABM is 54.1. 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 negative signal and 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 surpassed the market again by 10.1 percentage points. Unfortunately ABM wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ABM investors were disappointed as the stock returned -9.6% 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 most of these stocks already outperformed the market in 2021.

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

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