How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Allegheny Technologies Incorporated (NYSE:ATI).
Is ATI a good stock to buy now? Allegheny Technologies Incorporated (NYSE:ATI) was in 18 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. ATI investors should pay attention to a decrease in support from the world’s most elite money managers of late. There were 27 hedge funds in our database with ATI positions at the end of the second quarter. Our calculations also showed that ATI 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.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 we’re going to take a gander at the recent hedge fund action regarding Allegheny Technologies Incorporated (NYSE:ATI).
Do Hedge Funds Think ATI Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in ATI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in Allegheny Technologies Incorporated (NYSE:ATI), which was worth $41.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $23.1 million worth of shares. Millennium Management, Two Sigma Advisors, and Water Street Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to Allegheny Technologies Incorporated (NYSE:ATI), around 2.49% of its 13F portfolio. Water Street Capital is also relatively very bullish on the stock, dishing out 0.89 percent of its 13F equity portfolio to ATI.
Due to the fact that Allegheny Technologies Incorporated (NYSE:ATI) has faced bearish sentiment from hedge fund managers, logic holds that there were a few fund managers that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dropped the biggest investment of the 750 funds monitored by Insider Monkey, valued at about $7.9 million in stock, and Jonathan Berger’s Birch Grove Capital was right behind this move, as the fund dropped about $5.4 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 9 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Allegheny Technologies Incorporated (NYSE:ATI) but similarly valued. We will take a look at HudBay Minerals Inc (NYSE:HBM), Independence Realty Trust Inc (NYSE:IRT), Harsco Corporation (NYSE:HSC), Supernus Pharmaceuticals Inc (NASDAQ:SUPN), Griffon Corporation (NYSE:GFF), NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), and Calix Inc (NYSE:CALX). This group of stocks’ market values match ATI’s market value.
|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 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $139 million in ATI’s case. Griffon Corporation (NYSE:GFF) is the most popular stock in this table. On the other hand Independence Realty Trust Inc (NYSE:IRT) is the least popular one with only 9 bullish hedge fund positions. Allegheny Technologies Incorporated (NYSE:ATI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ATI is 45.3. 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 ATI as the stock returned 86.9% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.