Hedge Funds Are Nibbling On AAR Corp. (AIR)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards AAR Corp. (NYSE:AIR) at the end of the second quarter and determine whether the smart money was really smart about this stock.

AAR Corp. (NYSE:AIR) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 23. AIR has seen an increase in hedge fund interest in recent months. There were 18 hedge funds in our database with AIR holdings at the end of March. Our calculations also showed that AIR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are plenty of signals shareholders put to use to value stocks. A duo of the most underrated signals are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the top investment managers can outclass the broader indices by a healthy amount (see the details here).

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, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s review the key hedge fund action surrounding AAR Corp. (NYSE:AIR).

How are hedge funds trading AAR Corp. (NYSE:AIR)?

At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AIR over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is AIR A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in AAR Corp. (NYSE:AIR), which was worth $14.9 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $8.1 million worth of shares. Beach Point Capital Management, Arrowstreet Capital, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Beach Point Capital Management allocated the biggest weight to AAR Corp. (NYSE:AIR), around 2.36% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, designating 0.96 percent of its 13F equity portfolio to AIR.

With a general bullishness amongst the heavyweights, key money managers have jumped into AAR Corp. (NYSE:AIR) headfirst. Royce & Associates, managed by Chuck Royce, assembled the most valuable position in AAR Corp. (NYSE:AIR). Royce & Associates had $1 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.5 million position during the quarter. The other funds with brand new AIR positions are Donald Sussman’s Paloma Partners and Ken Griffin’s Citadel Investment Group.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as AAR Corp. (NYSE:AIR) but similarly valued. These stocks are Forestar Group Inc. (NYSE:FOR), Cryolife Inc (NYSE:CRY), Cohu, Inc. (NASDAQ:COHU), Frequency Therapeutics, Inc. (NASDAQ:FREQ), Petmed Express Inc (NASDAQ:PETS), Heritage Financial Corporation (NASDAQ:HFWA), and Bain Capital Specialty Finance, Inc. (NYSE:BCSF). This group of stocks’ market caps match AIR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FOR 14 83170 7
CRY 11 44644 4
COHU 12 53055 4
FREQ 6 101145 -2
PETS 19 120301 1
HFWA 7 12239 1
BCSF 11 22631 3
Average 11.4 62455 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.4 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $48 million in AIR’s case. Petmed Express Inc (NASDAQ:PETS) is the most popular stock in this table. On the other hand Frequency Therapeutics, Inc. (NASDAQ:FREQ) is the least popular one with only 6 bullish hedge fund positions. AAR Corp. (NYSE:AIR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AIR is 80.8. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately AIR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AIR were disappointed as the stock returned -9% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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