Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Alcoa Corporation (NYSE:AA)? The smart money sentiment can provide an answer to this question.
Is Alcoa Corporation (NYSE:AA) undervalued? Investors who are in the know were in an optimistic mood. The number of long hedge fund bets improved by 6 in recent months. Alcoa Corporation (NYSE:AA) was in 44 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 46. Our calculations also showed that AA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
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 are checking out stock pitches like this emerging lithium 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. Now let’s take a look at the fresh hedge fund action regarding Alcoa Corporation (NYSE:AA).
Do Hedge Funds Think AA Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in AA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Alcoa Corporation (NYSE:AA). Fisher Asset Management has a $242.7 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is Orbis Investment Management, led by William B. Gray, holding a $218.4 million position; 1.4% of its 13F portfolio is allocated to the stock. Other peers that are bullish consist of Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Alcoa Corporation (NYSE:AA), around 7.3% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, setting aside 5.17 percent of its 13F equity portfolio to AA.
As one would reasonably expect, key hedge funds have been driving this bullishness. Impala Asset Management, managed by Robert Bishop, created the most valuable position in Alcoa Corporation (NYSE:AA). Impala Asset Management had $38.3 million invested in the company at the end of the quarter. Ken Heebner’s Capital Growth Management also made a $21 million investment in the stock during the quarter. The following funds were also among the new AA investors: Dmitry Balyasny’s Balyasny Asset Management, Benjamin A. Smith’s Laurion Capital Management, and Louis Bacon’s Moore Global Investments.
Let’s check out hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). We will take a look at Dada Nexus Limited (NASDAQ:DADA), Silicon Laboratories Inc. (NASDAQ:SLAB), Sotera Health Company (NASDAQ:SHC), First American Financial Corp (NYSE:FAF), ANGI Inc (NASDAQ:ANGI), Stifel Financial Corp. (NYSE:SF), and Marriott Vacations Worldwide Corporation (NYSE:VAC). All of these stocks’ market caps resemble AA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DADA | 18 | 160572 | -3 |
| SLAB | 15 | 283453 | -3 |
| SHC | 18 | 437692 | -18 |
| FAF | 31 | 1224925 | -1 |
| ANGI | 26 | 313560 | -9 |
| SF | 24 | 416826 | 9 |
| VAC | 35 | 748154 | 11 |
| Average | 23.9 | 512169 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $1156 million in AA’s case. Marriott Vacations Worldwide Corporation (NYSE:VAC) is the most popular stock in this table. On the other hand Silicon Laboratories Inc. (NASDAQ:SLAB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Alcoa Corporation (NYSE:AA) is more popular among hedge funds. Our overall hedge fund sentiment score for AA is 88.7. 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 returned 29.6% in 2021 through November 5th but still managed to beat the market by 3.1 percentage points. Hedge funds were also right about betting on AA as the stock returned 30.2% since the end of June (through 11/5) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
