Is AJG Stock A Buy or Sell?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 887 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Arthur J. Gallagher & Co. (NYSE:AJG).

Is AJG stock a buy? Arthur J. Gallagher & Co. (NYSE:AJG) has seen a decrease in enthusiasm from smart money recently. Arthur J. Gallagher & Co. (NYSE:AJG) was in 24 hedge funds’ portfolios at the end of December. The all time high for this statistic is 35. There were 35 hedge funds in our database with AJG positions at the end of the third quarter. Our calculations also showed that AJG isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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 look at the fresh hedge fund action regarding Arthur J. Gallagher & Co. (NYSE:AJG).

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

At fourth quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AJG over the last 22 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Adage Capital Management was the largest shareholder of Arthur J. Gallagher & Co. (NYSE:AJG), with a stake worth $57.1 million reported as of the end of December. Trailing Adage Capital Management was Prospector Partners, which amassed a stake valued at $24.5 million. AQR Capital Management, Arrowstreet Capital, and GLG Partners 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 Prospector Partners allocated the biggest weight to Arthur J. Gallagher & Co. (NYSE:AJG), around 3.04% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, earmarking 1.88 percent of its 13F equity portfolio to AJG.

Seeing as Arthur J. Gallagher & Co. (NYSE:AJG) has experienced a decline in interest from hedge fund managers, it’s easy to see that there exists a select few hedgies that decided to sell off their entire stakes in the fourth quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $52.5 million in stock. Renaissance Technologies, also cut its stock, about $19.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 11 funds in the fourth quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Arthur J. Gallagher & Co. (NYSE:AJG) but similarly valued. We will take a look at Edison International (NYSE:EIX), Maxim Integrated Products Inc. (NASDAQ:MXIM), Rogers Communications Inc. (NYSE:RCI), Tyson Foods, Inc. (NYSE:TSN), DTE Energy Company (NYSE:DTE), Equifax Inc. (NYSE:EFX), and Cloudflare, Inc. (NYSE:NET). This group of stocks’ market valuations are similar to AJG’s market valuation.

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As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $1313 million. That figure was $143 million in AJG’s case. Cloudflare, Inc. (NYSE:NET) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 15 bullish hedge fund positions. Arthur J. Gallagher & Co. (NYSE:AJG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AJG is 24.6. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately AJG wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); AJG investors were disappointed as the stock returned 10.6% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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