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Did Hedge Funds Drop The Ball On Adient plc (ADNT) ?

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Adient plc (NYSE:ADNT) from the perspective of those elite funds.

Is Adient plc (NYSE:ADNT) a superb stock to buy now? The best stock pickers are becoming less hopeful. The number of bullish hedge fund positions fell by 2 recently. Our calculations also showed that ADNT isn’t among the 30 most popular stocks among hedge funds. ADNT was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 29 hedge funds in our database with ADNT holdings at the end of the previous quarter.

In the financial world there are many signals shareholders put to use to grade publicly traded companies. A duo of the most underrated signals are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can outpace the S&P 500 by a very impressive margin (see the details here).

Clifton Robbins Blue Harbour

Let’s take a gander at the recent hedge fund action encompassing Adient plc (NYSE:ADNT).

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

At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2018. On the other hand, there were a total of 29 hedge funds with a bullish position in ADNT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

ADNT_apr2019

Among these funds, Blue Harbour Group held the most valuable stake in Adient plc (NYSE:ADNT), which was worth $98.7 million at the end of the fourth quarter. On the second spot was Lakewood Capital Management which amassed $40.9 million worth of shares. Moreover, Greenlight Capital, Greenhaven Associates, and Newtyn Management were also bullish on Adient plc (NYSE:ADNT), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Adient plc (NYSE:ADNT) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers that decided to sell off their positions entirely by the end of the third quarter. Interestingly, Michael Blitzer’s Kingstown Capital Management said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $27.5 million in stock. Alex Duran and Scott Hendrickson’s fund, Permian Investment Partners, also cut its stock, about $19.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Adient plc (NYSE:ADNT) but similarly valued. We will take a look at Fanhua Inc. (NASDAQ:FANH), Cadence Bancorporation (NYSE:CADE), Qudian Inc. (NYSE:QD), and Gentherm Inc (NASDAQ:THRM). This group of stocks’ market caps match ADNT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FANH 9 13664 5
CADE 18 117882 -1
QD 15 14376 9
THRM 17 80419 4
Average 14.75 56585 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $287 million in ADNT’s case. Cadence Bancorporation (NYSE:CADE) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Adient plc (NYSE:ADNT) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on ADNT as the stock returned 69.6% 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.

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