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. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of A. O. Smith Corporation (NYSE:AOS) based on that data.
Is A. O. Smith Corporation (NYSE:AOS) going to take off soon? The smart money is getting more optimistic. The number of bullish hedge fund positions rose by 3 recently. Our calculations also showed that AOS 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). AOS was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 23 hedge funds in our database with AOS positions at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’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.
Ray Dalio of Bridgewater Associates
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. With all of this in mind we’re going to view the key hedge fund action surrounding A. O. Smith Corporation (NYSE:AOS).
How have hedgies been trading A. O. Smith Corporation (NYSE:AOS)?
At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in AOS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ian Simm’s Impax Asset Management has the largest position in A. O. Smith Corporation (NYSE:AOS), worth close to $201.3 million, comprising 2.2% of its total 13F portfolio. The second largest stake is held by Millennium Management, managed by Israel Englander, which holds a $53.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain Dmitry Balyasny’s Balyasny Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Water Asset Management allocated the biggest weight to A. O. Smith Corporation (NYSE:AOS), around 3.36% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 2.25 percent of its 13F equity portfolio to AOS.
Consequently, some big names were leading the bulls’ herd. Bridgewater Associates, managed by Ray Dalio, initiated the largest position in A. O. Smith Corporation (NYSE:AOS). Bridgewater Associates had $2.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $2.7 million position during the quarter. The other funds with brand new AOS positions are Joel Greenblatt’s Gotham Asset Management, Lee Ainslie’s Maverick Capital, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as A. O. Smith Corporation (NYSE:AOS) but similarly valued. These stocks are Albemarle Corporation (NYSE:ALB), Monolithic Power Systems, Inc. (NASDAQ:MPWR), Post Holdings Inc (NYSE:POST), and Pentair plc (NYSE:PNR). This group of stocks’ market caps are similar to AOS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALB | 23 | 116420 | 5 |
| MPWR | 27 | 325420 | 1 |
| POST | 38 | 1515106 | 10 |
| PNR | 26 | 507381 | 1 |
| Average | 28.5 | 616082 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $616 million. That figure was $397 million in AOS’s case. Post Holdings Inc (NYSE:POST) is the most popular stock in this table. On the other hand Albemarle Corporation (NYSE:ALB) is the least popular one with only 23 bullish hedge fund positions. A. O. Smith Corporation (NYSE:AOS) is not the least popular stock in this group but hedge fund interest is still below average. 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 but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on AOS as the stock returned -19.8% during the same time period and outperformed the market by an even larger margin.
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.
