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Is Allegheny Technologies Incorporated (ATI) Going To Burn These Hedge Funds ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Allegheny Technologies Incorporated (NYSE:ATI).

Is Allegheny Technologies Incorporated (NYSE:ATI) a healthy stock for your portfolio? The smart money is getting less bullish. The number of long hedge fund positions went down by 4 lately. Our calculations also showed that ATI isn’t among the 30 most popular stocks among hedge funds (view the video below). ATI was in 21 hedge funds’ portfolios at the end of June. There were 25 hedge funds in our database with ATI 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.

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

FISHER ASSET MANAGEMENT

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 take a look at the recent hedge fund action surrounding Allegheny Technologies Incorporated (NYSE:ATI).

How are hedge funds trading Allegheny Technologies Incorporated (NYSE:ATI)?

At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATI over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

No of Hedge Funds with ATI Positions

More specifically, Iridian Asset Management was the largest shareholder of Allegheny Technologies Incorporated (NYSE:ATI), with a stake worth $90.8 million reported as of the end of March. Trailing Iridian Asset Management was Millennium Management, which amassed a stake valued at $47.6 million. Water Street Capital, Fisher Asset Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Because Allegheny Technologies Incorporated (NYSE:ATI) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies that elected to cut their full holdings heading into Q3. Intriguingly, Nick Niell’s Arrowgrass Capital Partners dropped the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $93 million in stock. Richard S. Meisenberg’s fund, ACK Asset Management, also sold off its stock, about $12.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Allegheny Technologies Incorporated (NYSE:ATI) but similarly valued. These stocks are Neogen Corporation (NASDAQ:NEOG), Thor Industries, Inc. (NYSE:THO), AMC Networks Inc (NASDAQ:AMCX), and Terreno Realty Corporation (NYSE:TRNO). This group of stocks’ market caps are closest to ATI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NEOG 12 28955 0
THO 19 115885 -1
AMCX 19 306968 -1
TRNO 9 48390 -4
Average 14.75 125050 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $341 million in ATI’s case. Thor Industries, Inc. (NYSE:THO) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Allegheny Technologies Incorporated (NYSE:ATI) 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. Unfortunately ATI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ATI were disappointed as the stock returned -19.6% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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

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