Were Hedge Funds Right About Axalta Coating Systems Ltd (AXTA)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Axalta Coating Systems Ltd (NYSE:AXTA) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Axalta Coating Systems Ltd (NYSE:AXTA) investors should pay attention to an increase in enthusiasm from smart money lately. Axalta Coating Systems Ltd (NYSE:AXTA) was in 47 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 60. Our calculations also showed that AXTA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

John Rogers of Ariel Investments

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. 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. 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. With all of this in mind let’s view the latest hedge fund action surrounding Axalta Coating Systems Ltd (NYSE:AXTA).

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

At Q2’s end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AXTA over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Rivulet Capital held the most valuable stake in Axalta Coating Systems Ltd (NYSE:AXTA), which was worth $192.4 million at the end of the second quarter. On the second spot was Ariel Investments which amassed $170.1 million worth of shares. Citadel Investment Group, Millennium Management, and Gates 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 Rivulet Capital allocated the biggest weight to Axalta Coating Systems Ltd (NYSE:AXTA), around 10.9% of its 13F portfolio. Parsifal Capital Management is also relatively very bullish on the stock, setting aside 6.09 percent of its 13F equity portfolio to AXTA.

Consequently, key hedge funds have jumped into Axalta Coating Systems Ltd (NYSE:AXTA) headfirst. Gates Capital Management, managed by Jeffrey Gates, created the most valuable position in Axalta Coating Systems Ltd (NYSE:AXTA). Gates Capital Management had $120.8 million invested in the company at the end of the quarter. Parag Vora’s HG Vora Capital Management also made a $53.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and James Crichton’s Hitchwood Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Axalta Coating Systems Ltd (NYSE:AXTA) but similarly valued. We will take a look at Digital Turbine Inc (NASDAQ:APPS), Ascendis Pharma A/S (NASDAQ:ASND), Brooks Automation, Inc. (NASDAQ:BRKS), Freshpet Inc (NASDAQ:FRPT), Harley-Davidson, Inc. (NYSE:HOG), Mattel, Inc. (NASDAQ:MAT), and First Financial Bankshares Inc (NASDAQ:FFIN). This group of stocks’ market caps are similar to AXTA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $782 million. That figure was $1490 million in AXTA’s case. Harley-Davidson, Inc. (NYSE:HOG) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Axalta Coating Systems Ltd (NYSE:AXTA) is more popular among hedge funds. Our overall hedge fund sentiment score for AXTA is 82.5. 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 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately AXTA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AXTA were disappointed as the stock returned 6% since the end of the second quarter (through 11/5) 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.