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Hedge Funds Have Never Been This Bullish On GATX Corporation (GATX)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards GATX Corporation (NYSE:GATX).

Is GATX Corporation (NYSE:GATX) a bargain? The smart money is getting more bullish. The number of bullish hedge fund bets moved up by 5 recently. Our calculations also showed that GATX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). GATX was in 21 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 16 hedge funds in our database with GATX positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Mario Gabelli of GAMCO Investors

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the latest hedge fund action regarding GATX Corporation (NYSE:GATX).

What does smart money think about GATX Corporation (NYSE:GATX)?

Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GATX over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in GATX Corporation (NYSE:GATX) was held by GAMCO Investors, which reported holding $170.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $13.4 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Winton Capital Management. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to GATX Corporation (NYSE:GATX), around 1.36% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, setting aside 0.23 percent of its 13F equity portfolio to GATX.

Now, key money managers have been driving this bullishness. Winton Capital Management, managed by David Harding, established the largest position in GATX Corporation (NYSE:GATX). Winton Capital Management had $9 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $1.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Ray Dalio’s Bridgewater Associates, Benjamin A. Smith’s Laurion Capital Management, and Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as GATX Corporation (NYSE:GATX) but similarly valued. These stocks are Triton International Limited (NYSE:TRTN), AllianceBernstein Holding LP (NYSE:AB), Ryder System, Inc. (NYSE:R), and Grocery Outlet Holding Corp. (NASDAQ:GO). This group of stocks’ market caps resemble GATX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRTN 16 56386 1
AB 11 53571 3
R 23 347690 1
GO 14 78999 -1
Average 16 134162 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $228 million in GATX’s case. Ryder System, Inc. (NYSE:R) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 11 bullish hedge fund positions. GATX Corporation (NYSE:GATX) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately GATX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GATX were disappointed as the stock returned -26.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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