Applied Industrial Technologies (AIT): Are Hedge Funds Right About This Stock?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Applied Industrial Technologies (NYSE:AIT).

Applied Industrial Technologies (NYSE:AIT) investors should pay attention to a decrease in enthusiasm from smart money of late. 15 hedge funds that we track were long the stock on September 30. There were 18 hedge funds in our database with AIT 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 Kennametal Inc. (NYSE:KMT), Anixter International Inc. (NYSE:AXE), and M/A-COM Technology Solutions Holdings (NASDAQ:MTSI) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Dmitry Kalinovsky/Shutterstock.com

How have hedgies been trading Applied Industrial Technologies (NYSE:AIT)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a 17% decline from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in AIT at the beginning of this year, so hedge fund ownership is still up by 50% this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Royce & Associates, led by Chuck Royce, holds the biggest position in Applied Industrial Technologies (NYSE:AIT). Royce & Associates has a $37.1 million position in the stock. On Royce & Associates’ heels is Renaissance Technologies, founded by Jim Simons, which holds an $8.1 million position. Remaining professional money managers that are bullish encompass Robert Polak’s Anchor Bolt Capital, Tim Curro’s Value Holdings LP, and Cliff Asness’ AQR Capital Management. We should note that Value Holdings LP is 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.

Due to the fact that Applied Industrial Technologies (NYSE:AIT) has gone through a decline in interest from hedge fund managers, logic holds that there exists a select few hedgies that elected to cut their entire stakes by the end of the third quarter. Interestingly, Neil Chriss’ Hutchin Hill Capital cashed in the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $0.9 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $0.9 million worth.

Let’s go over hedge fund activity in other stocks similar to Applied Industrial Technologies (NYSE:AIT). We will take a look at Kennametal Inc. (NYSE:KMT), Anixter International Inc. (NYSE:AXE), M/A-COM Technology Solutions Holdings (NASDAQ:MTSI), and Triumph Group Inc (NYSE:TGI). All of these stocks’ market caps are similar to AIT’s market cap.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $303 million. That figure was $71 million in AIT’s case. Kennametal Inc. (NYSE:KMT) is the most popular stock in this table. On the other hand M/A-COM Technology Solutions Holdings (NASDAQ:MTSI) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Applied Industrial Technologies (NYSE:AIT) is only as popular as MTSI. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None