Hedge Funds Are Dumping A. O. Smith Corporation (AOS)

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards A. O. Smith Corporation (NYSE:AOS) changed recently.

Is A. O. Smith Corporation (NYSE:AOS) a bargain? The best stock pickers were taking a pessimistic view. The number of long hedge fund bets decreased by 7 in recent months. A. O. Smith Corporation (NYSE:AOS) was in 24 hedge funds’ portfolios at the end of March. The all time high for this statistic is 35. Our calculations also showed that AOS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a glance at the new hedge fund action regarding A. O. Smith Corporation (NYSE:AOS).

Do Hedge Funds Think AOS Is A Good Stock To Buy Now?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in AOS a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in A. O. Smith Corporation (NYSE:AOS) was held by Fundsmith LLP, which reported holding $118.9 million worth of stock at the end of December. It was followed by Impax Asset Management with a $76 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Sandler Capital Management allocated the biggest weight to A. O. Smith Corporation (NYSE:AOS), around 1.71% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to AOS.

Judging by the fact that A. O. Smith Corporation (NYSE:AOS) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there were a few hedge funds who were dropping their full holdings by the end of the first quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest position of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $25.2 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $18.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to A. O. Smith Corporation (NYSE:AOS). These stocks are Apollo Global Management Inc (NYSE:APO), Lear Corporation (NYSE:LEA), Credicorp Ltd. (NYSE:BAP), AGCO Corporation (NYSE:AGCO), Ozon Holdings PLC (NASDAQ:OZON), Steel Dynamics, Inc. (NASDAQ:STLD), and Five Below Inc (NASDAQ:FIVE). All of these stocks’ market caps match AOS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APO 44 2362179 14
LEA 23 1217537 -13
BAP 22 236121 7
AGCO 36 552596 -4
OZON 17 136135 -4
STLD 26 570961 -1
FIVE 43 1010018 1
Average 30.1 869364 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $869 million. That figure was $421 million in AOS’s case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand Ozon Holdings PLC (NASDAQ:OZON) is the least popular one with only 17 bullish hedge fund positions. A. O. Smith Corporation (NYSE:AOS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AOS is 31.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately AOS wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AOS investors were disappointed as the stock returned 3.8% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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