American Railcar Industries, Inc. (ARII) Hedge Funds Are Snapping Up

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

American Railcar Industries, Inc. (NASDAQ:ARII) investors should be aware of an increase in activity from the world’s largest hedge funds lately. There were 11 hedge funds in our database with ARII positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Aduro BioTech Inc (NASDAQ:ADRO), Veritiv Corp (NYSE:VRTV), and Denny’s Corporation (NASDAQ:DENN) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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Keeping this in mind, let’s go over the fresh action surrounding American Railcar Industries, Inc. (NASDAQ:ARII).

How have hedgies been trading American Railcar Industries, Inc. (NASDAQ:ARII)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 45% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARII over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Icahn Capital LP, led by Carl Icahn, holds the biggest position in American Railcar Industries, Inc. (NASDAQ:ARII). According to regulatory filings, the fund has a $492.3 million position in the stock, comprising 2.5% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, which holds an $8 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Chuck Royce’s Royce & Associates, Murray Stahl’s Horizon Asset Management and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now, key hedge funds have jumped into American Railcar Industries, Inc. (NASDAQ:ARII) headfirst. Arrowstreet Capital assembled the most valuable position in American Railcar Industries, Inc. (NASDAQ:ARII). Jim Simons’ Renaissance Technologies also made a $1.2 million investment in the stock during the quarter. The other funds with brand new ARII positions are Benjamin A. Smith’s Laurion Capital Management, Israel Englander’s Millennium Management, and Ken Griffin’s Citadel Investment Group.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as American Railcar Industries, Inc. (NASDAQ:ARII) but similarly valued. These stocks are Aduro BioTech Inc (NASDAQ:ADRO), Veritiv Corp (NYSE:VRTV), Denny’s Corporation (NASDAQ:DENN), and Scorpio Tankers Inc. (NYSE:STNG). This group of stocks’ market valuations resemble ARII’s market valuation.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $523 million in ARII’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Aduro BioTech Inc (NASDAQ:ADRO) is the least popular one with only 6 bullish hedge fund positions. American Railcar Industries, Inc. (NASDAQ:ARII) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard STNG might be a better candidate to consider taking a long position in.