Hedge Funds Are Warming Up To A. O. Smith Corporation (AOS)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in A. O. Smith Corporation (NYSE:AOS)? The smart money sentiment can provide an answer to this question.

A. O. Smith Corporation (NYSE:AOS) has seen an increase in hedge fund interest recently. A. O. Smith Corporation (NYSE:AOS) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistic is 35. There were 24 hedge funds in our database with AOS positions at the end of the first quarter. Our calculations also showed that AOS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most investors, hedge funds are perceived as worthless, outdated investment tools of the past. While there are over 8000 funds with their doors open at present, We look at the crème de la crème of this club, about 850 funds. These hedge fund managers manage the majority of the hedge fund industry’s total capital, and by tracking their finest investments, Insider Monkey has come up with several investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. Now let’s take a gander at the latest hedge fund action surrounding A. O. Smith Corporation (NYSE:AOS).

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

At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AOS over the last 24 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Fundsmith LLP was the largest shareholder of A. O. Smith Corporation (NYSE:AOS), with a stake worth $127.4 million reported as of the end of June. Trailing Fundsmith LLP was Impax Asset Management, which amassed a stake valued at $119 million. Citadel Investment Group, Balyasny Asset Management, and AQR Capital Management 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 Sandler Capital Management allocated the biggest weight to A. O. Smith Corporation (NYSE:AOS), around 2.83% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, designating 0.85 percent of its 13F equity portfolio to AOS.

Consequently, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in A. O. Smith Corporation (NYSE:AOS). Balyasny Asset Management had $43.7 million invested in the company at the end of the quarter. Jos Shaver’s Electron Capital Partners also initiated a $17.6 million position during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Anand Parekh’s Alyeska Investment Group, and Frederick DiSanto’s Ancora Advisors.

Let’s also examine hedge fund activity in other stocks similar to A. O. Smith Corporation (NYSE:AOS). These stocks are AMERCO (NASDAQ:UHAL), Cable One Inc (NYSE:CABO), Westlake Chemical Corporation (NYSE:WLK), Booz Allen Hamilton Holding Corporation (NYSE:BAH), Bruker Corporation (NASDAQ:BRKR), RPM International Inc. (NYSE:RPM), and Axon Enterprise, Inc. (NASDAQ:AXON). This group of stocks’ market valuations are similar to AOS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $584 million in AOS’s case. Westlake Chemical Corporation (NYSE:WLK) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 20 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 49.3. 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 24.9% in 2021 through October 15th and surpassed the market again by 4.5 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 -8.5% since the end of June (through 10/15) 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.