We can judge whether Alcoa Corporation (NYSE:AA) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, research shows that these picks historically outperformed the market when we factor in known risk factors.
Alcoa Corporation (NYSE:AA) was in 34 hedge funds’ portfolios at the end of September. AA shareholders have witnessed a decrease in support from the world’s most successful money managers of late. There were 38 hedge funds in our database with AA positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Henry Schein, Inc. (NASDAQ:HSIC), American Water Works Co., Inc. (NYSE:AWK), and Citrix Systems, Inc. (NASDAQ:CTXS) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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How have hedgies been trading Alcoa Corporation (NYSE:AA)?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 11% from one quarter earlier. By comparison, 41 hedge funds held shares or bullish call options in AA heading into this year. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Elliott Management, led by Paul Singer, holds the biggest position in Alcoa Corporation (NYSE:AA). Elliott Management has a $786.9 million position in the stock, comprising 6.4% of its 13F portfolio. Sitting at the No. 2 spot is Robert Rodriguez and Steven Romick of First Pacific Advisors LLC, with a $623.4 million position; 5.2% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions encompass William B. Gray’s Orbis Investment Management, and Benjamin A. Smith’s Laurion Capital Management. We should note that Orbis Investment Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Seeing as Alcoa Corporation (NYSE:AA) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of funds who sold off their full holdings in the third quarter. At the top of the heap, David Greenspan’s Slate Path Capital cut the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $65 million in stock. Billionaire investor Stan Druckenmiller also sold out his $31 million position during the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alcoa Corporation (NYSE:AA) but similarly valued. These stocks are Henry Schein, Inc. (NASDAQ:HSIC), American Water Works Co., Inc. (NYSE:AWK), Citrix Systems, Inc. (NASDAQ:CTXS), and Viacom, Inc. (NASDAQ:VIAB). This group of stocks’ market values resemble AA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HSIC | 23 | 388072 | 0 |
| AWK | 24 | 404404 | 3 |
| CTXS | 38 | 1425918 | -7 |
| VIAB | 44 | 1073033 | 3 |
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $823 million. That figure was $2.33 billion in AA’s case. Viacom, Inc. (NASDAQ:VIAB) is the most popular stock in this table. On the other hand Henry Schein, Inc. (NASDAQ:HSIC) is the least popular one with only 23 bullish hedge fund positions. Alcoa Corporation (NYSE:AA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard VIAB might be a better candidate to consider taking a long position in.
Disclosure: None
