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 Atlas Corp. (NYSE:ATCO) and determine whether hedge funds had an edge regarding this stock.
Is Atlas Corp. (NYSE:ATCO) the right pick for your portfolio? Money managers were in a pessimistic mood. The number of long hedge fund bets decreased by 2 recently. Our calculations also showed that ATCO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ATCO was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with ATCO positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
According to most traders, hedge funds are seen as unimportant, outdated financial vehicles of the past. While there are greater than 8000 funds with their doors open at the moment, We look at the top tier of this club, about 850 funds. Most estimates calculate that this group of people handle the lion’s share of the hedge fund industry’s total asset base, and by paying attention to their inimitable stock picks, Insider Monkey has unearthed a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 15 largest gold producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the fresh hedge fund action regarding Atlas Corp. (NYSE:ATCO).
What have hedge funds been doing with Atlas Corp. (NYSE:ATCO)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ATCO 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, Fairfax Financial Holdings was the largest shareholder of Atlas Corp. (NYSE:ATCO), with a stake worth $770.4 million reported as of the end of September. Trailing Fairfax Financial Holdings was Renaissance Technologies, which amassed a stake valued at $18.3 million. Miller Value Partners, PEAK6 Capital Management, and D E Shaw 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 Fairfax Financial Holdings allocated the biggest weight to Atlas Corp. (NYSE:ATCO), around 53.34% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, earmarking 0.17 percent of its 13F equity portfolio to ATCO.
Due to the fact that Atlas Corp. (NYSE:ATCO) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers who sold off their positions entirely heading into Q4. At the top of the heap, Michael Gelband’s ExodusPoint Capital cut the largest position of the 750 funds watched by Insider Monkey, valued at an estimated $4.3 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund cut about $1.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Atlas Corp. (NYSE:ATCO). We will take a look at CVR Energy, Inc. (NYSE:CVI), Federal Signal Corporation (NYSE:FSS), Ameris Bancorp (NASDAQ:ABCB), and World Fuel Services Corporation (NYSE:INT). This group of stocks’ market caps match ATCO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CVI | 19 | 1243640 | -12 |
| FSS | 15 | 53758 | -3 |
| ABCB | 13 | 78011 | -3 |
| INT | 13 | 98040 | -9 |
| Average | 15 | 368362 | -6.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $795 million in ATCO’s case. CVR Energy, Inc. (NYSE:CVI) is the most popular stock in this table. On the other hand Ameris Bancorp (NASDAQ:ABCB) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Atlas Corp. (NYSE:ATCO) is even less popular than ABCB. Hedge funds dodged a bullet by taking a bearish stance towards ATCO. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately ATCO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ATCO investors were disappointed as the stock returned -3.2% during the second quarter (through June 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.