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

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Harley-Davidson, Inc. (NYSE:HOG)? The smart money sentiment can provide an answer to this question.

Is HOG a good stock to buy? Hedge funds were betting on the stock. The number of bullish hedge fund positions advanced by 2 recently. Harley-Davidson, Inc. (NYSE:HOG) was in 32 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HOG 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 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet 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 we’re going to take a look at the fresh hedge fund action encompassing Harley-Davidson, Inc. (NYSE:HOG).

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

At the end of September, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HOG over the last 21 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is HOG A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Rehan Jaffer’s H Partners Management has the most valuable position in Harley-Davidson, Inc. (NYSE:HOG), worth close to $157.1 million, corresponding to 27.1% of its total 13F portfolio. Coming in second is Impala Asset Management, led by Robert Bishop, holding a $84.4 million position; 8.5% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism encompass Mitch Kuflik and Rob Sobel’s Brahman Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position H Partners Management allocated the biggest weight to Harley-Davidson, Inc. (NYSE:HOG), around 27.15% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, designating 8.51 percent of its 13F equity portfolio to HOG.

Now, specific money managers have jumped into Harley-Davidson, Inc. (NYSE:HOG) headfirst. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Harley-Davidson, Inc. (NYSE:HOG). Holocene Advisors had $28.1 million invested in the company at the end of the quarter. Renaissance Technologies also made a $12.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Jody LaNasa’s Serengeti Asset Management, Mika Toikka’s AlphaCrest Capital Management, and Jinghua Yan’s TwinBeech Capital.

Let’s go over hedge fund activity in other stocks similar to Harley-Davidson, Inc. (NYSE:HOG). We will take a look at KB Home (NYSE:KBH), Switch, Inc. (NYSE:SWCH), Murphy USA Inc. (NYSE:MUSA), Terreno Realty Corporation (NYSE:TRNO), NewMarket Corporation (NYSE:NEU), Marriott Vacations Worldwide Corporation (NYSE:VAC), and Physicians Realty Trust (NYSE:DOC). All of these stocks’ market caps resemble HOG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KBH 23 311311 0
SWCH 22 312020 0
MUSA 23 314514 -4
TRNO 15 38109 6
NEU 17 109363 -4
VAC 17 375694 -7
DOC 14 99026 -1
Average 18.7 222862 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $491 million in HOG’s case. KB Home (NYSE:KBH) is the most popular stock in this table. On the other hand Physicians Realty Trust (NYSE:DOC) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Harley-Davidson, Inc. (NYSE:HOG) is more popular among hedge funds. Our overall hedge fund sentiment score for HOG is 87. 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 HOG as the stock returned 45.6% 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.