Is AA A Good Stock To Buy According To Hedge Funds?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Alcoa Corporation (NYSE:AA).

Is AA a good stock to buy? Hedge fund interest in Alcoa Corporation (NYSE:AA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare AA to other stocks including Utz Brands Inc (NYSE:UTZ), Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY), and Federated Hermes, Inc. (NYSE:FHI) to get a better sense of its popularity.

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jack Ripsteen Tim Ripsteen Potrero Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let’s take a look at the new hedge fund action surrounding Alcoa Corporation (NYSE:AA).

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

At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 33 hedge funds with a bullish position in AA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AA A Good Stock To Buy?

The largest stake in Alcoa Corporation (NYSE:AA) was held by Orbis Investment Management, which reported holding $127.5 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $77.9 million position. Other investors bullish on the company included Arrowstreet Capital, Two Sigma Advisors, and Masters Capital Management. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Alcoa Corporation (NYSE:AA), around 4.8% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, earmarking 4.33 percent of its 13F equity portfolio to AA.

Since Alcoa Corporation (NYSE:AA) has experienced declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of fund managers who sold off their positions entirely last quarter. Intriguingly, John Smith Clark’s Southpoint Capital Advisors cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $13.5 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $5.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). We will take a look at Utz Brands Inc (NYSE:UTZ), Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY), Federated Hermes, Inc. (NYSE:FHI), Guangshen Railway Co. Ltd (NYSE:GSH), PagerDuty, Inc. (NYSE:PD), Greif, Inc. (NYSE:GEF), and Beacon Roofing Supply, Inc. (NASDAQ:BECN). All of these stocks’ market caps match AA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UTZ 15 166197 -4
HRMY 10 214625 10
FHI 29 167641 -1
GSH 1 95 0
PD 28 138455 -2
GEF 15 75775 -2
BECN 23 323585 7
Average 17.3 155196 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $416 million in AA’s case. Federated Hermes, Inc. (NYSE:FHI) is the most popular stock in this table. On the other hand Guangshen Railway Co. Ltd (NYSE:GSH) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Alcoa Corporation (NYSE:AA) is more popular among hedge funds. Our overall hedge fund sentiment score for AA is 76.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on AA as the stock returned 89.3% since the end of September (through 12/18) 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.

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