Is AA Stock A Buy or Sell?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31st, so let’s proceed with the discussion of the hedge fund sentiment on Alcoa Corporation (NYSE:AA).

Is AA stock a buy? Alcoa Corporation (NYSE:AA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 33 hedge funds’ portfolios at the end of December. Our calculations also showed that AA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare AA to other stocks including ChemoCentryx Inc (NASDAQ:CCXI), Altair Engineering Inc. (NASDAQ:ALTR), and Valvoline Inc. (NYSE:VVV) to get a better sense of its popularity.

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 124 percentage points since March 2017 (see the details here).

Ken Heebner of Capital Growth Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a peek at the fresh hedge fund action encompassing Alcoa Corporation (NYSE:AA).

Do Hedge Funds Think AA Is A Good Stock To Buy Now?

At Q4’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in AA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Orbis Investment Management, managed by William B. Gray, holds the number one position in Alcoa Corporation (NYSE:AA). Orbis Investment Management has a $200.1 million position in the stock, comprising 1.4% of its 13F portfolio. Coming in second is Fisher Asset Management, led by Ken Fisher, holding a $153.8 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Alcoa Corporation (NYSE:AA), around 7.09% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, dishing out 2.51 percent of its 13F equity portfolio to AA.

Due to the fact that Alcoa Corporation (NYSE:AA) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that decided to sell off their positions entirely in the fourth quarter. It’s worth mentioning that Didric Cederholm’s Lion Point said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, totaling an estimated $19.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $8.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). We will take a look at ChemoCentryx Inc (NASDAQ:CCXI), Altair Engineering Inc. (NASDAQ:ALTR), Valvoline Inc. (NYSE:VVV), The Hanover Insurance Group, Inc. (NYSE:THG), Inari Medical, Inc. (NASDAQ:NARI), MGIC Investment Corporation (NYSE:MTG), and Axis Capital Holdings Limited (NYSE:AXS). This group of stocks’ market valuations match AA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $781 million in AA’s case. Valvoline Inc. (NYSE:VVV) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Alcoa Corporation (NYSE:AA) is more popular among hedge funds. Our overall hedge fund sentiment score for AA is 76.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 7.9% in 2021 through April 1st but still managed to beat the market by 0.4 percentage points. Hedge funds were also right about betting on AA as the stock returned 39.8% since the end of December (through 4/1) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.