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Should You Buy Fiat Chrysler Automobiles NV (FCAU)?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Fiat Chrysler Automobiles NV (NYSE:FCAU) changed recently.

Fiat Chrysler Automobiles NV (NYSE:FCAU) was in 28 hedge funds’ portfolios at the end of the second quarter of 2019. FCAU has seen an increase in enthusiasm from smart money recently. There were 27 hedge funds in our database with FCAU positions at the end of the previous quarter. Our calculations also showed that FCAU isn’t among the 30 most popular stocks among hedge funds.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

FCAU_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 view the fresh hedge fund action encompassing Fiat Chrysler Automobiles NV (NYSE:FCAU).

What does smart money think about Fiat Chrysler Automobiles NV (NYSE:FCAU)?

Heading into the third quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in FCAU 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.

MOHNISH PABRAI

Of the funds tracked by Insider Monkey, Tiger Global Management LLC, managed by Chase Coleman, holds the number one position in Fiat Chrysler Automobiles NV (NYSE:FCAU). Tiger Global Management LLC has a $1.3025 billion position in the stock, comprising 7.1% of its 13F portfolio. Sitting at the No. 2 spot is Mohnish Pabrai of Mohnish Pabrai, with a $177.8 million position; 60.5% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions include John Overdeck and David Siegel’s Two Sigma Advisors, Paul Marshall and Ian Wace’s Marshall Wace LLP and Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Ancient Art (Teton Capital), managed by Quincy Lee, initiated the most valuable position in Fiat Chrysler Automobiles NV (NYSE:FCAU). Ancient Art (Teton Capital) had $10 million invested in the company at the end of the quarter. Bill Miller’s Miller Value Partners also made a $2.8 million investment in the stock during the quarter. The following funds were also among the new FCAU investors: Matthew Tewksbury’s Stevens Capital Management, Minhua Zhang’s Weld Capital Management, and David Andre and Astro Teller’s Cerebellum Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fiat Chrysler Automobiles NV (NYSE:FCAU) but similarly valued. These stocks are Fortive Corporation (NYSE:FTV), AutoZone, Inc. (NYSE:AZO), Barrick Gold Corporation (NYSE:GOLD), and Sirius XM Holdings Inc (NASDAQ:SIRI). This group of stocks’ market valuations resemble FCAU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTV 28 362155 2
AZO 37 1123000 -5
GOLD 39 1162700 2
SIRI 29 1238935 -3
Average 33.25 971698 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $972 million. That figure was $1924 million in FCAU’s case. Barrick Gold Corporation (NYSE:GOLD) is the most popular stock in this table. On the other hand Fortive Corporation (NYSE:FTV) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Fiat Chrysler Automobiles NV (NYSE:FCAU) is even less popular than FTV. Hedge funds dodged a bullet by taking a bearish stance towards FCAU. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FCAU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FCAU investors were disappointed as the stock returned -6.3% 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 so far in 2019.

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

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