Was The Smart Money Right About General Motors Company (GM)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of General Motors Company (NYSE:GM) based on that data.

General Motors Company (NYSE:GM) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 86 hedge funds’ portfolios at the end of June. Our calculations also showed that GM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare GM to other stocks including U.S. Bancorp (NYSE:USB), Automatic Data Processing, Inc. (NASDAQ:ADP), and Crown Castle International Corp. (REIT) (NYSE:CCI) to get a better sense of its popularity.

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 79 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.

Stanley Druckenmiller of Duquesne Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy 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 we’re going to review the fresh hedge fund action regarding General Motors Company (NYSE:GM).

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

At the end of June, a total of 86 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in GM over the last 24 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the biggest position in General Motors Company (NYSE:GM). Berkshire Hathaway has a $3.5502 billion position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by Boykin Curry of Eagle Capital Management, with a $715.5 million position; 2% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions consist of Edgar Wachenheim’s Greenhaven Associates, Ric Dillon’s Diamond Hill Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to General Motors Company (NYSE:GM), around 18.01% of its 13F portfolio. Pennant Capital Management is also relatively very bullish on the stock, setting aside 8.9 percent of its 13F equity portfolio to GM.

Judging by the fact that General Motors Company (NYSE:GM) has witnessed bearish sentiment from the smart money, we can see that there were a few hedge funds who sold off their full holdings heading into Q3. It’s worth mentioning that Jos Shaver’s Electron Capital Partners sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $40.2 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund sold off about $26.9 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as General Motors Company (NYSE:GM) but similarly valued. We will take a look at U.S. Bancorp (NYSE:USB), Automatic Data Processing, Inc. (NASDAQ:ADP), Crown Castle International Corp. (REIT) (NYSE:CCI), ConocoPhillips (NYSE:COP), The TJX Companies, Inc. (NYSE:TJX), Cigna Corporation (NYSE:CI), and Enbridge Inc (NYSE:ENB). This group of stocks’ market valuations are closest to GM’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.6 hedge funds with bullish positions and the average amount invested in these stocks was $2848 million. That figure was $7415 million in GM’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks General Motors Company (NYSE:GM) is more popular among hedge funds. Our overall hedge fund sentiment score for GM is 84.3. 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 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately GM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on GM were disappointed as the stock returned -8% since the end of the second quarter (through 10/29) 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 since 2019.

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