Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Ally Financial Inc (NYSE:ALLY).
Is ALLY a good stock to buy now? Prominent investors were in a pessimistic mood. The number of long hedge fund positions decreased by 1 lately. Ally Financial Inc (NYSE:ALLY) was in 53 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 57. Our calculations also showed that ALLY 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). There were 54 hedge funds in our database with ALLY positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most shareholders, hedge funds are viewed as slow, outdated investment tools of years past. While there are over 8000 funds trading at the moment, Our researchers hone in on the top tier of this club, approximately 850 funds. These hedge fund managers orchestrate most of the smart money’s total capital, and by shadowing their finest equity investments, Insider Monkey has unearthed several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium 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. With all of this in mind we’re going to go over the fresh hedge fund action surrounding Ally Financial Inc (NYSE:ALLY).
Hedge fund activity in Ally Financial Inc (NYSE:ALLY)
At third quarter’s end, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the second quarter of 2020. By comparison, 55 hedge funds held shares or bullish call options in ALLY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Howard Marks’s Oaktree Capital Management has the most valuable position in Ally Financial Inc (NYSE:ALLY), worth close to $359 million, comprising 7.8% of its total 13F portfolio. The second largest stake is held by Kerr Neilson of Platinum Asset Management, with a $171.6 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise Phill Gross and Robert Atchinson’s Adage Capital Management, Adam Peterson’s Magnolia Capital Fund and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Punch Card Capital allocated the biggest weight to Ally Financial Inc (NYSE:ALLY), around 33.39% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, designating 24.73 percent of its 13F equity portfolio to ALLY.
Seeing as Ally Financial Inc (NYSE:ALLY) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management cut the largest position of the 750 funds tracked by Insider Monkey, comprising close to $90.8 million in stock. Kenneth Mario Garschina’s fund, Mason Capital Management, also said goodbye to its stock, about $17.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ally Financial Inc (NYSE:ALLY) but similarly valued. We will take a look at Nuance Communications Inc. (NASDAQ:NUAN), Shaw Communications Inc (NYSE:SJR), Huntington Bancshares Incorporated (NASDAQ:HBAN), Medical Properties Trust, Inc. (NYSE:MPW), Elastic N.V. (NYSE:ESTC), Galapagos NV (NASDAQ:GLPG), and Vistra Corp. (NYSE:VST). This group of stocks’ market valuations resemble ALLY’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $949 million. That figure was $1928 million in ALLY’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Ally Financial Inc (NYSE:ALLY) is more popular among hedge funds. Our overall hedge fund sentiment score for ALLY is 81.9. 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 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on ALLY as the stock returned 24.7% since the end of September (through 12/2) 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.