Were These Hedge Funds Right About Adient plc (ADNT)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Adient plc (NYSE:ADNT).

Is Adient plc (NYSE:ADNT) the right investment to pursue these days? Hedge funds were getting more bullish. The number of bullish hedge fund bets increased by 3 in recent months. Adient plc (NYSE:ADNT) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 48. Our calculations also showed that ADNT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phillip Gross of Adage Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we’re going to take a peek at the new hedge fund action encompassing Adient plc (NYSE:ADNT).

How are hedge funds trading Adient plc (NYSE:ADNT)?

At Q2’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ADNT over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, Lyrical Asset Management held the most valuable stake in Adient plc (NYSE:ADNT), which was worth $85.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $28.3 million worth of shares. Greenhaven Associates, Adage Capital Management, and Lakewood 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 Newtyn Management allocated the biggest weight to Adient plc (NYSE:ADNT), around 7.51% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, earmarking 2.23 percent of its 13F equity portfolio to ADNT.

Now, specific money managers have been driving this bullishness. Impala Asset Management, managed by Robert Bishop, created the most outsized position in Adient plc (NYSE:ADNT). Impala Asset Management had $14.5 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also initiated a $5.4 million position during the quarter. The following funds were also among the new ADNT investors: Anand Parekh’s Alyeska Investment Group, Dmitry Balyasny’s Balyasny Asset Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Adient plc (NYSE:ADNT) but similarly valued. These stocks are Adaptimmune Therapeutics plc (NASDAQ:ADAP), NIC Inc. (NASDAQ:EGOV), Holly Energy Partners, L.P. (NYSE:HEP), Magnolia Oil & Gas Corporation (NYSE:MGY), First Midwest Bancorp Inc (NASDAQ:FMBI), Arconic Corporation (NYSE:ARNC), and Inter Parfums, Inc. (NASDAQ:IPAR). All of these stocks’ market caps match ADNT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $341 million in ADNT’s case. Magnolia Oil & Gas Corporation (NYSE:MGY) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Adient plc (NYSE:ADNT) is more popular among hedge funds. Our overall hedge fund sentiment score for ADNT is 79.9. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on ADNT as the stock returned 29.2% since the end of June (through 10/30) 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.

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