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 Genuine Parts Company (NYSE:GPC) and determine whether hedge funds had an edge regarding this stock.
Genuine Parts Company (NYSE:GPC) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. GPC investors should be aware of a decrease in enthusiasm from smart money of late. There were 22 hedge funds in our database with GPC holdings at the end of March. Our calculations also showed that GPC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Now let’s view the key hedge fund action encompassing Genuine Parts Company (NYSE:GPC).
What does smart money think about Genuine Parts Company (NYSE:GPC)?
At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in GPC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the most valuable position in Genuine Parts Company (NYSE:GPC), worth close to $79.6 million, corresponding to 0.9% of its total 13F portfolio. Coming in second is Select Equity Group, managed by Robert Joseph Caruso, which holds a $21 million position; 0.1% of its 13F portfolio is allocated to the company. Other peers that are bullish contain Brandon Haley’s Holocene Advisors, and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Genuine Parts Company (NYSE:GPC), around 0.91% of its 13F portfolio. Holocene Advisors is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to GPC.
Because Genuine Parts Company (NYSE:GPC) has experienced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of hedgies that slashed their positions entirely last quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth about $18.6 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also dropped its stock, about $6.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Genuine Parts Company (NYSE:GPC) but similarly valued. These stocks are Sarepta Therapeutics Inc (NASDAQ:SRPT), Hewlett Packard Enterprise Company (NYSE:HPE), Grifols SA (NASDAQ:GRFS), Nucor Corporation (NYSE:NUE), FactSet Research Systems Inc. (NYSE:FDS), Seagate Technology plc (NASDAQ:STX), and Masimo Corporation (NASDAQ:MASI). This group of stocks’ market values resemble GPC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SRPT | 39 | 1148135 | 6 |
| HPE | 31 | 693633 | 2 |
| GRFS | 21 | 583023 | -2 |
| NUE | 26 | 115702 | 0 |
| FDS | 21 | 200608 | 0 |
| STX | 27 | 2100119 | -5 |
| MASI | 32 | 160712 | 1 |
| Average | 28.1 | 714562 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $715 million. That figure was $144 million in GPC’s case. Sarepta Therapeutics Inc (NASDAQ:SRPT) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Genuine Parts Company (NYSE:GPC) is even less popular than GRFS. Our overall hedge fund sentiment score for GPC is 23.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of the third quarter but managed to beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on GPC, though not to the same extent, as the stock returned 10.3% in Q3 and outperformed the market as well.
Follow Genuine Parts Co (NYSE:GPC)
Follow Genuine Parts Co (NYSE:GPC)
Disclosure: None. This article was originally published at Insider Monkey.
