Should I Avoid Alleghany Corporation (Y)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Alleghany Corporation (NYSE:Y) changed recently.

Alleghany Corporation (NYSE:Y) has seen a decrease in enthusiasm from smart money in recent months. Alleghany Corporation (NYSE:Y) was in 30 hedge funds’ portfolios at the end of September. The all time high for this statistic is 34. There were 32 hedge funds in our database with Y holdings at the end of June. Our calculations also showed that Y isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a glance at the new hedge fund action regarding Alleghany Corporation (NYSE:Y).

Peter Algert of Algert Global

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

At third quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in Y a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Polar Capital held the most valuable stake in Alleghany Corporation (NYSE:Y), which was worth $111 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $65.4 million worth of shares. Royce & Associates, Prospector Partners, and Echo Street Capital 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 Prospector Partners allocated the biggest weight to Alleghany Corporation (NYSE:Y), around 2.94% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, setting aside 0.95 percent of its 13F equity portfolio to Y.

Due to the fact that Alleghany Corporation (NYSE:Y) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few hedge funds that decided to sell off their entire stakes by the end of the third quarter. Intriguingly, Matthew Stadelman’s Diamond Hill Capital dumped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $53.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $5.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Alleghany Corporation (NYSE:Y) but similarly valued. These stocks are Western Midstream Partners, LP (NYSE:WES), Cameco Corporation (NYSE:CCJ), Vornado Realty Trust (NYSE:VNO), Flex Ltd. (NASDAQ:FLEX), Ovintiv Inc. (NYSE:OVV), The Gap Inc. (NYSE:GPS), and CRISPR Therapeutics AG (NASDAQ:CRSP). This group of stocks’ market valuations are closest to Y’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.4 hedge funds with bullish positions and the average amount invested in these stocks was $644 million. That figure was $325 million in Y’s case. Ovintiv Inc. (NYSE:OVV) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 10 bullish hedge fund positions. Alleghany Corporation (NYSE:Y) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for Y is 58.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately Y wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); Y investors were disappointed as the stock returned 3.6% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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