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

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Altra Industrial Motion Corp. (NASDAQ:AIMC).

Is AIMC a good stock to buy now? Altra Industrial Motion Corp. (NASDAQ:AIMC) has experienced an increase in activity from the world’s largest hedge funds lately. Altra Industrial Motion Corp. (NASDAQ:AIMC) was in 22 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 35. Our calculations also showed that AIMC 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).

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 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 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 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.

Jeffrey Gates of Gates Capital

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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let’s review the key hedge fund action surrounding Altra Industrial Motion Corp. (NASDAQ:AIMC).

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

At third quarter’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 83% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AIMC over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Altra Industrial Motion Corp. (NASDAQ:AIMC) was held by Gates Capital Management, which reported holding $59.3 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $15.4 million position. Other investors bullish on the company included Columbus Circle Investors, ACK Asset Management, and GLG Partners. In terms of the portfolio weights assigned to each position ACK Asset Management allocated the biggest weight to Altra Industrial Motion Corp. (NASDAQ:AIMC), around 4.44% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, setting aside 2.58 percent of its 13F equity portfolio to AIMC.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Columbus Circle Investors, managed by Principal Global Investors, established the most valuable position in Altra Industrial Motion Corp. (NASDAQ:AIMC). Columbus Circle Investors had $12.7 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $4.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Driehaus’s Driehaus Capital, Renaissance Technologies, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks similar to Altra Industrial Motion Corp. (NASDAQ:AIMC). These stocks are Broadstone Net Lease, Inc. (NYSE:BNL), Webster Financial Corporation (NYSE:WBS), Norbord Inc. (NYSE:OSB), Commercial Metals Company (NYSE:CMC), FirstCash, Inc. (NASDAQ:FCFS), HB Fuller Co (NYSE:FUL), and Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). This group of stocks’ market values match AIMC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BNL 12 90873 12
WBS 25 264192 -5
OSB 13 76406 2
CMC 20 103252 -2
FCFS 21 168321 -1
FUL 16 141330 6
KTOS 14 31213 -8
Average 17.3 125084 0.6

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 $125 million. That figure was $118 million in AIMC’s case. Webster Financial Corporation (NYSE:WBS) is the most popular stock in this table. On the other hand Broadstone Net Lease, Inc. (NYSE:BNL) is the least popular one with only 12 bullish hedge fund positions. Altra Industrial Motion Corp. (NASDAQ:AIMC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AIMC is 67.3. 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. 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 gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on AIMC as the stock returned 43.1% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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