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Hedge Funds Dipping Their Toes Back Into Adient plc (ADNT)

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 Adient plc (NYSE:ADNT) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Adient plc (NYSE:ADNT) investors should be aware of an increase in hedge fund sentiment in recent months. Adient plc (NYSE:ADNT) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 48. There were 32 hedge funds in our database with ADNT holdings at the end of March. Our calculations also showed that ADNT 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 a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to go over the recent hedge fund action regarding Adient plc (NYSE:ADNT).

What have hedge funds been doing with Adient plc (NYSE:ADNT)?

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in ADNT over the last 20 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Adient plc (NYSE:ADNT) was held by Lyrical Asset Management, which reported holding $85.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $28.3 million position. Other investors bullish on the company included Greenhaven Associates, Adage Capital Management, and Lakewood Capital Management. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to Adient plc (NYSE:ADNT), around 7.51% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, designating 2.23 percent of its 13F equity portfolio to ADNT.

As one would reasonably expect, some big names have been driving this bullishness. Impala Asset Management, managed by Robert Bishop, initiated the most valuable position in Adient plc (NYSE:ADNT). Impala Asset Management had $14.5 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also initiated a $5.4 million position during the quarter. The other funds with brand new ADNT positions are Anand Parekh’s Alyeska Investment Group, Dmitry Balyasny’s Balyasny Asset Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks similar to Adient plc (NYSE:ADNT). We will take a look at Adaptimmune Therapeutics plc (NASDAQ:ADAP), NIC Inc. (NASDAQ:EGOV), Holly Energy Partners, L.P. (NYSE:HEP), Magnolia Oil & Gas Corporation (NYSE:MGY), First Midwest Bancorp Inc (NASDAQ:FMBI), Arconic Corporation (NYSE:ARNC), and Inter Parfums, Inc. (NASDAQ:IPAR). This group of stocks’ market values match ADNT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADAP 19 831196 8
EGOV 16 108964 -1
HEP 2 2399 -4
MGY 20 86261 0
FMBI 11 39364 0
ARNC 16 478899 -9
IPAR 15 62131 2
Average 14.1 229888 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $341 million in ADNT’s case. Magnolia Oil & Gas Corporation (NYSE:MGY) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Adient plc (NYSE:ADNT) is more popular among hedge funds. Our overall hedge fund sentiment score for ADNT is 79.9. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately ADNT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ADNT were disappointed as the stock returned 5.6% since the end of the second quarter 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 most of these stocks already outperformed the market in 2020.

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