Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Harley-Davidson, Inc. (NYSE:HOG) a buy, sell, or hold? The best stock pickers are becoming more confident. The number of long hedge fund bets inched up by 4 recently. Our calculations also showed that HOG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). HOG was in 18 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with HOG positions at the end of the previous quarter.
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joel Greenblatt of Gotham Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the key hedge fund action regarding Harley-Davidson, Inc. (NYSE:HOG).
What does smart money think about Harley-Davidson, Inc. (NYSE:HOG)?
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HOG over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Balyasny Asset Management was the largest shareholder of Harley-Davidson, Inc. (NYSE:HOG), with a stake worth $12.6 million reported as of the end of September. Trailing Balyasny Asset Management was GLG Partners, which amassed a stake valued at $4.4 million. Marshall Wace, Citadel Investment Group, and Millennium Management 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 Neo Ivy Capital allocated the biggest weight to Harley-Davidson, Inc. (NYSE:HOG), around 0.56% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.23 percent of its 13F equity portfolio to HOG.
As one would reasonably expect, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized call position in Harley-Davidson, Inc. (NYSE:HOG). Balyasny Asset Management had $12.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also made a $2.6 million investment in the stock during the quarter. The other funds with brand new HOG positions are Matthew Hulsizer’s PEAK6 Capital Management, Mike Vranos’s Ellington, and Joel Greenblatt’s Gotham Asset Management.
Let’s go over hedge fund activity in other stocks similar to Harley-Davidson, Inc. (NYSE:HOG). These stocks are BOK Financial Corporation (NASDAQ:BOKF), MDU Resources Group Inc (NYSE:MDU), Axis Capital Holdings Limited (NYSE:AXS), and Sarepta Therapeutics Inc (NASDAQ:SRPT). All of these stocks’ market caps are similar to HOG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BOKF | 16 | 189307 | -3 |
| MDU | 21 | 378844 | 0 |
| AXS | 28 | 893110 | 1 |
| SRPT | 33 | 801161 | -15 |
| Average | 24.5 | 565606 | -4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $566 million. That figure was $20 million in HOG’s case. Sarepta Therapeutics Inc (NASDAQ:SRPT) is the most popular stock in this table. On the other hand BOK Financial Corporation (NASDAQ:BOKF) is the least popular one with only 16 bullish hedge fund positions. Harley-Davidson, Inc. (NYSE:HOG) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HOG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HOG investors were disappointed as the stock returned 1.1% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
