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General Dynamics Corporation (NYSE:GD): Hedge Funds Are Bearish and Insiders Are Bullish, What Should You Do?

Is General Dynamics Corporation (NYSE:GD) a buy here? Hedge funds are becoming less confident. The number of long hedge fund positions dropped by 1 in recent months.

General Dynamics Corporation (NYSE:GD)To most stock holders, hedge funds are assumed to be unimportant, old financial tools of yesteryear. While there are greater than 8000 funds with their doors open today, we hone in on the masters of this club, about 450 funds. It is widely believed that this group controls the majority of all hedge funds’ total capital, and by tracking their highest performing equity investments, we have identified a number of investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 25 percentage points in 6.5 month (check out a sample of our picks).

Equally as important, bullish insider trading sentiment is a second way to break down the marketplace. As the old adage goes: there are plenty of reasons for an upper level exec to sell shares of his or her company, but just one, very clear reason why they would buy. Plenty of academic studies have demonstrated the market-beating potential of this method if piggybackers know what to do (learn more here).

Keeping this in mind, it’s important to take a gander at the recent action regarding General Dynamics Corporation (NYSE:GD).

How are hedge funds trading General Dynamics Corporation (NYSE:GD)?

Heading into 2013, a total of 37 of the hedge funds we track were long in this stock, a change of -3% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially.

Of the funds we track, Longview Asset Management, managed by James A. Star, holds the biggest position in General Dynamics Corporation (NYSE:GD). Longview Asset Management has a $2.313 billion position in the stock, comprising 78.6% of its 13F portfolio. On Longview Asset Management’s heels is Berkshire Hathaway, managed by Warren Buffett, which held a $269 million position; 3.5% of its 13F portfolio is allocated to the company. Remaining hedge funds that are bullish include Ken Griffin’s Citadel Investment Group, Sandy Nairn’s Edinburgh Partners and D. E. Shaw’s D E Shaw.

Judging by the fact that General Dynamics Corporation (NYSE:GD) has experienced bearish sentiment from the smart money, we can see that there were a few hedgies that slashed their full holdings in Q4. Interestingly, Thomas Steyer’s Farallon Capital dumped the biggest investment of all the hedgies we monitor, valued at close to $61 million in stock., and Jean-Marie Eveillard of First Eagle Investment Management was right behind this move, as the fund sold off about $20 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds in Q4.

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

Bullish insider trading is at its handiest when the company in question has experienced transactions within the past six months. Over the last half-year time period, General Dynamics Corporation (NYSE:GD) has seen 1 unique insiders buying, and zero insider sales (see the details of insider trades here).

With the returns shown by the aforementioned strategies, everyday investors should always keep an eye on hedge fund and insider trading activity, and General Dynamics Corporation (NYSE:GD) shareholders fit into this picture quite nicely.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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