Was The Smart Money Right About General Dynamics Corporation (GD)?

With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was General Dynamics Corporation (NYSE:GD).

Is General Dynamics Corporation (NYSE:GD) a great investment now? Prominent investors were turning bullish. The number of long hedge fund positions inched up by 3 recently. General Dynamics Corporation (NYSE:GD) was in 40 hedge funds’ portfolios at the end of December. The all time high for this statistic is 51. Our calculations also showed that GD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. 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 homepage. Keeping this in mind let’s take a look at the new hedge fund action encompassing General Dynamics Corporation (NYSE:GD).

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

Heading into the first quarter of 2021, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GD over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in General Dynamics Corporation (NYSE:GD) was held by Longview Asset Management, which reported holding $4470.8 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $117.4 million position. Other investors bullish on the company included Adage Capital Management, Abrams Bison Investments, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Longview Asset Management allocated the biggest weight to General Dynamics Corporation (NYSE:GD), around 95.97% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, designating 6.64 percent of its 13F equity portfolio to GD.

Consequently, specific money managers have jumped into General Dynamics Corporation (NYSE:GD) headfirst. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), created the largest position in General Dynamics Corporation (NYSE:GD). Schonfeld Strategic Advisors had $3.3 million invested in the company at the end of the quarter. Peter Avellone’s Cartenna Capital also initiated a $2.3 million position during the quarter. The following funds were also among the new GD investors: Michael Gelband’s ExodusPoint Capital, Parvinder Thiara’s Athanor Capital, and Matthew Tewksbury’s Stevens Capital Management.

Let’s check out hedge fund activity in other stocks similar to General Dynamics Corporation (NYSE:GD). These stocks are IDEXX Laboratories, Inc. (NASDAQ:IDXX), Constellation Brands, Inc. (NYSE:STZ), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), The Kraft Heinz Company (NASDAQ:KHC), Metlife Inc (NYSE:MET), Roku, Inc. (NASDAQ:ROKU), and Align Technology, Inc. (NASDAQ:ALGN). This group of stocks’ market values are closest to GD’s market value.

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As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $3260 million. That figure was $4955 million in GD’s case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. General Dynamics Corporation (NYSE:GD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GD is 61.5. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on GD as the stock returned 29.6% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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