Harley-Davidson, Inc. (NYSE:HOG) has not done very well in the past few months. Year to date the stock has lost more than 17% of its value. But Harley-Davidson, Inc. (NYSE:HOG) is trading higher (+4.8%) on Thursday post an upgrade from UBS. UBS has upgraded the stock from a ‘Neutral’ rating to a ‘Buy’ rating. UBS upgrade came post the announcement from Harley-Davidson, Inc. (NYSE:HOG) to bump up its share buybacks by $15 million on Wednesday in addition to its previously allotted $20 million repurchase plans.
We use hedge fund and insider trading sentiments to analyze each stock’s potential going forward. Harley-Davidson’s hedge fund sentiment shows a negative signal as the number of bullish hedge fund positions in the stock went down significantly to 27 by the end of Q1. There were around 42 hedge funds in the stock at the end of Q4 2014. This was a whopping 36% reduction in the hedge fund position in the stock.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 84 percentage points since the end of August 2012. These stocks returned a cumulative of 142% vs. less than 58% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Insider trading sentiment in Harley-Davidson is also negative as several insiders opt to sell their stake in the stock and there was no insider purchases of the stock this year. Many insiders even opt to sell out their entire stake in the stock.
Let’s check out the key action encompassing Harley-Davidson, Inc. (NYSE:HOG).
How have hedgies been trading Harley-Davidson, Inc. (NYSE:HOG)?
At the end of first quarter, there was a change of -36% in the number of hedge fund long position in the stock, which indicates a very strong negative hedge fund sentiment. Despite the reduction in hedge fund positions in the stock some hedge fund managers had substantial holdings in the stock.
Cantillon Capital Management holds the largest position in the Harley-Davidson, Inc. (NYSE:HOG) stock. Cantillon’s holding in Harley-Davidson, Inc. (NYSE:HOG) is worth around $380.2 million, which comprises of 7.4% of the hedge funds’ 13F portfolio. Mueffling’s hedge fund is followed by Robert Joseph Caruso’s Select Equity Group which holds $239.6 million position in the stock. This accounts for 2.2% of Caruso’s hedge fund’s 13F portfolio. Other hedge funds that have considerable amount of holding in the stock are Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Joel Greenblatt’s Gotham Asset Management.
But there are some hedge fund managers who opt to sell out their entire stake in the stock. Some notable hedge funds are Jim Simons’s Renaissance Technologies and Daniel Lascano’s Lomas Capital Management, which had sold $24.9 million and $18.5 million worth of stock and said a big good bye to the stock. These bearish behaviors outweigh the bullish behaviors on the stock as a net of 15 funds completely dropped their interest in the stock.
Both the insider and hedge fund sentiment are strongly negative for the stock. Despite the fact that the stock had a positive move today, we don’t recommend to buy this stock at the moment.