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General Dynamics Corporation (GD): Are Hedge Funds Right About This Stock?

“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

General Dynamics Corporation (NYSE:GD) has experienced an increase in enthusiasm from smart money of late. Our calculations also showed that GD isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Harold Levy Iridian Asset Management

Let’s take a peek at the new hedge fund action encompassing General Dynamics Corporation (NYSE:GD).

What have hedge funds been doing with General Dynamics Corporation (NYSE:GD)?

At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the second quarter of 2018. By comparison, 42 hedge funds held shares or bullish call options in GD 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.

GD_mar2019

The largest stake in General Dynamics Corporation (NYSE:GD) was held by Longview Asset Management, which reported holding $5138.1 million worth of stock at the end of September. It was followed by Farallon Capital with a $256 million position. Other investors bullish on the company included Adage Capital Management, Iridian Asset Management, and Sirios Capital Management.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Discovery Capital Management, managed by Rob Citrone, assembled the most outsized position in General Dynamics Corporation (NYSE:GD). Discovery Capital Management had $18.5 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $14.1 million investment in the stock during the quarter. The other funds with brand new GD positions are Sander Gerber’s Hudson Bay Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now review hedge fund activity in other stocks similar to General Dynamics Corporation (NYSE:GD). We will take a look at The Bank of New York Mellon Corporation (NYSE:BK), Occidental Petroleum Corporation (NYSE:OXY), UBS Group AG (NYSE:UBS), and Prudential plc (NYSE:PUK). This group of stocks’ market values are similar to GD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BK 25 5029389 -14
OXY 32 1051021 -3
UBS 11 739518 -3
PUK 9 29777 4
Average 19.25 1712426 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $1712 million. That figure was $6274 million in GD’s case. Occidental Petroleum Corporation (NYSE:OXY) is the most popular stock in this table. On the other hand Prudential plc (NYSE:PUK) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks General Dynamics Corporation (NYSE:GD) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately GD wasn’t in this group. Hedge funds that bet on GD were disappointed as the stock returned 8.6% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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