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Do Hedge Funds Love Allegheny Technologies Incorporated (ATI)?

At Insider Monkey, we pore over the filings of more than 700 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Allegheny Technologies Incorporated (NYSE:ATI) makes for a good investment right now.

Is Allegheny Technologies Incorporated (NYSE:ATI) a worthy investment right now? The smart money is taking a bearish view. The number of long hedge fund bets were trimmed by 1 lately. Our calculations also showed that ati isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

Chuck Royce

We’re going to view the fresh hedge fund action encompassing Allegheny Technologies Incorporated (NYSE:ATI).

Hedge fund activity in Allegheny Technologies Incorporated (NYSE:ATI)

Heading into the fourth quarter of 2018, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2018. By comparison, 28 hedge funds held shares or bullish call options in ATI heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ATI Positions

More specifically, Water Street Capital was the largest shareholder of Allegheny Technologies Incorporated (NYSE:ATI), with a stake worth $92.3 million reported as of the end of September. Trailing Water Street Capital was Fisher Asset Management, which amassed a stake valued at $38.7 million. Royce & Associates, D E Shaw, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Allegheny Technologies Incorporated (NYSE:ATI) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that elected to cut their positions entirely in the third quarter. Interestingly, Alan Fournier’s Pennant Capital Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $12 million in stock, and Michael Barnes and Arif Inayatullah’s Tricadia Capital Management was right behind this move, as the fund cut about $7.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Allegheny Technologies Incorporated (NYSE:ATI). These stocks are Wolverine World Wide, Inc. (NYSE:WWW), Nexstar Media Group, Inc. (NASDAQ:NXST), RBC Bearings Incorporated (NASDAQ:ROLL), and Two Harbors Investment Corp (NYSE:TWO). All of these stocks’ market caps match ATI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WWW 13 124374 -1
NXST 37 894057 6
ROLL 7 60213 -2
TWO 14 122041 0
Average 17.75 300171 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $348 million in ATI’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 7 bullish hedge fund positions. Allegheny Technologies Incorporated (NYSE:ATI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NXST might be a better candidate to consider a long position.

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

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