Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Allegheny Technologies Incorporated (NYSE:ATI).
Allegheny Technologies Incorporated (NYSE:ATI) was in 27 hedge funds’ portfolios at the end of December. ATI investors should be aware of an increase in support from the world’s most elite money managers lately. There were 22 hedge funds in our database with ATI positions at the end of the previous quarter. Our calculations also showed that ATI 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).
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
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. Keeping this in mind we’re going to take a peek at the fresh hedge fund action surrounding Allegheny Technologies Incorporated (NYSE:ATI).
What does smart money think about Allegheny Technologies Incorporated (NYSE:ATI)?
At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ATI over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Water Street Capital was the largest shareholder of Allegheny Technologies Incorporated (NYSE:ATI), with a stake worth $28.6 million reported as of the end of September. Trailing Water Street Capital was D E Shaw, which amassed a stake valued at $25.4 million. Fisher Asset Management, GAMCO Investors, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to Allegheny Technologies Incorporated (NYSE:ATI), around 7.26% of its 13F portfolio. Water Street Capital is also relatively very bullish on the stock, designating 2.45 percent of its 13F equity portfolio to ATI.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. GLG Partners, managed by Noam Gottesman, created the most valuable position in Allegheny Technologies Incorporated (NYSE:ATI). GLG Partners had $1.6 million invested in the company at the end of the quarter. Alexander Roepers’s Atlantic Investment Management also made a $1 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Peter Muller’s PDT Partners.
Let’s now review hedge fund activity in other stocks similar to Allegheny Technologies Incorporated (NYSE:ATI). These stocks are Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), Monro Muffler Brake Inc (NASDAQ:MNRO), Halozyme Therapeutics, Inc. (NASDAQ:HALO), and Altera Corporation (NASDAQ:ALTR). This group of stocks’ market caps resemble ATI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBA | 3 | 43174 | -1 |
| MNRO | 18 | 171810 | 1 |
| HALO | 25 | 198183 | -1 |
| ALTR | 10 | 212059 | -2 |
| Average | 14 | 156307 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $146 million in ATI’s case. Halozyme Therapeutics, Inc. (NASDAQ:HALO) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Allegheny Technologies Incorporated (NYSE:ATI) 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately ATI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ATI were disappointed as the stock returned -64.6% during the first two and a half months of 2020 (through March 25th) 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.
