You’ll be living high on the hog shortly if you invest in Harley-Davidson, Inc. (NYSE:HOG), Barron’s suggests in its July 6 issue, predicting a rally for the stock of as much as 30%. However, is this optimism echoed by the world’s foremost money managers? According to Barron’s, two things are in the iconic motorcycle maker’s favor: its massive stock buyback program and its efforts to slash costs. Harley-Davidson last month approved a new buyback program which could see the company purchase 20 million shares or almost a tenth of all of its outstanding shares. Furthermore, Barron’s says that the company’s campaign to “right-size” its manufacturing and therefore make costs just right – an effort spearheaded by Keith Wandell, the company’s former CEO who retired in May – is benefiting the firm. The stock’s price history so far seems to disagree however, as the stock has fallen over 15% year-to-date and over 18% over the last year. Hedge funds by the end of the first quarter also displayed decreased enthusiasm for the firm, which could be deemed justified as the stock fell 7.23% from April 1 to June 30.
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand, the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012, these top small-cap stocks beat the market by an impressive 80 percentage points, returning over 135% (read the details here). Hence, a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
We also track insider sentiment to judge whether company insiders are betting on stocks like Harley-Davidson, Inc. (NYSE:HOG). For the motorcycle maker, there were no insiders buying the stock within the current year. Its former CEO, Keith Wandell, however, sold 82,166 shares in February. Director Goerge Conrades also sold 39,700 shares of the firm in the same month.
Now, we’re going to check out the new hedge fund action regarding Harley-Davidson, Inc. on the next page.
Hedge fund activity in Harley-Davidson, Inc. (NYSE:HOG)
At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long in this stock, a 36% slide from the previous quarter. The total value of their holdings also decreased to $1.15 billion by the end of the first quarter, down 12.77% from the $1.32 billion it stood at as of the end of the prior quarter, even though the stock only depreciated by 7.84% from January 2 to March 31.
Of the funds tracked by Insider Monkey, Cantillon Capital Management, managed by William von Mueffling, holds the most valuable position in Harley-Davidson, Inc. (NYSE:HOG). Cantillon Capital Management has a $380.2 million position of 6.26 million shares, comprising 7.4% of its 13F portfolio. The second-largest stake is held by Select Equity Group, led by Robert Joseph Caruso, holding a $239.6 million position of 3.94 million shares; 2.2% of its 13F portfolio is allocated to the stock. Other hedgies that hold long positions contain Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management, and Joel Greenblatt’s Gotham Asset Management.
Seeing as Harley-Davidson, Inc. (NYSE:HOG) has faced a decline in interest from hedge fund managers, we can see that there exists a select few funds that elected to cut their full holdings by the end of the first quarter. Interestingly, Jim Simons‘ Renaissance Technologies said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, 377,193 shares totaling close to $24.9 million. Daniel Lascano’s fund, Lomas Capital Management, also cut its position of 281,200 shares worth about $18.5 million.
With the decline of enthusiasm from hedge funds, those long on Harley-Davidson, Inc. (NYSE:HOG) may need to reassess their position. However, with it’s slide during the second quarter making it cheaper and the strong optimism among analysts, it will interesting to see what the smart money did in the stock during that period. For now, we don’t recommend buying it.
Disclosure: None
