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Here’s What Hedge Funds Think About AAR Corp. (AIR)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on AAR Corp. (NYSE:AIR) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is AAR Corp. (NYSE:AIR) undervalued? Money managers are getting less bullish. The number of long hedge fund bets went down by 1 lately. Our calculations also showed that AIR isn’t among the 30 most popular stocks among hedge funds (see the video below). AIR was in 22 hedge funds’ portfolios at the end of June. There were 23 hedge funds in our database with AIR positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mario Gabelli with cereal box

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the fresh hedge fund action encompassing AAR Corp. (NYSE:AIR).

What does smart money think about AAR Corp. (NYSE:AIR)?

Heading into the third quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AIR over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with AIR Positions

The largest stake in AAR Corp. (NYSE:AIR) was held by Fisher Asset Management, which reported holding $36.7 million worth of stock at the end of March. It was followed by Beach Point Capital Management with a $20.7 million position. Other investors bullish on the company included GAMCO Investors, Millennium Management, and Marshall Wace LLP.

Due to the fact that AAR Corp. (NYSE:AIR) has experienced a decline in interest from hedge fund managers, we can see that there was a specific group of hedgies who sold off their positions entirely by the end of the second quarter. It’s worth mentioning that Minhua Zhang’s Weld Capital Management cut the biggest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $0.7 million in stock, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt. was right behind this move, as the fund cut about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to AAR Corp. (NYSE:AIR). We will take a look at Monmouth Real Estate Investment Corporation (NYSE:MNR), Hudson Ltd. (NYSE:HUD), Sangamo Therapeutics, Inc. (NASDAQ:SGMO), and PBF Logistics LP (NYSE:PBFX). All of these stocks’ market caps resemble AIR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MNR 13 62448 4
HUD 12 32562 -3
SGMO 17 69348 -2
PBFX 3 2502 1
Average 11.25 41715 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $117 million in AIR’s case. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) is the most popular stock in this table. On the other hand PBF Logistics LP (NYSE:PBFX) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks AAR Corp. (NYSE:AIR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on AIR as the stock returned 12.2% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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