We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of AECOM (NYSE:ACM).
Is AECOM (NYSE:ACM) a buy right now? The smart money is becoming hopeful. The number of long hedge fund positions increased by 9 recently. Our calculations also showed that ACM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ACM was in 36 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 27 hedge funds in our database with ACM positions at the end of the previous 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 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the fresh hedge fund action regarding AECOM (NYSE:ACM).
How are hedge funds trading AECOM (NYSE:ACM)?
At the end of the fourth quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ACM over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Smith’s Starboard Value LP has the biggest position in AECOM (NYSE:ACM), worth close to $257.7 million, accounting for 7.5% of its total 13F portfolio. Sitting at the No. 2 spot is Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, which holds a $174.5 million position; 2.4% of its 13F portfolio is allocated to the stock. Some other peers that are bullish consist of Ken Griffin’s Citadel Investment Group, Renaissance Technologies and Richard S. Pzena’s Pzena Investment Management. In terms of the portfolio weights assigned to each position Engine Capital allocated the biggest weight to AECOM (NYSE:ACM), around 9.01% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, setting aside 7.46 percent of its 13F equity portfolio to ACM.
Consequently, specific money managers have jumped into AECOM (NYSE:ACM) headfirst. Gotham Asset Management, managed by Joel Greenblatt, assembled the most valuable position in AECOM (NYSE:ACM). Gotham Asset Management had $5.4 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $3.4 million investment in the stock during the quarter. The following funds were also among the new ACM investors: Ray Dalio’s Bridgewater Associates, Qing Li’s Sciencast Management, and Jonathan Soros’s JS Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as AECOM (NYSE:ACM) but similarly valued. We will take a look at Columbia Sportswear Company (NASDAQ:COLM), Skechers USA Inc (NYSE:SKX), Grupo Televisa SAB (NYSE:TV), and Entegris Inc (NASDAQ:ENTG). This group of stocks’ market valuations are closest to ACM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COLM | 23 | 135440 | -6 |
| SKX | 30 | 653184 | 2 |
| TV | 19 | 995016 | 4 |
| ENTG | 24 | 775840 | -6 |
| Average | 24 | 639870 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $640 million. That figure was $1125 million in ACM’s case. Skechers USA Inc (NYSE:SKX) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks AECOM (NYSE:ACM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately ACM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ACM were disappointed as the stock returned -35.6% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
