We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether The Goodyear Tire & Rubber Company (NASDAQ:GT) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is The Goodyear Tire & Rubber Company (NASDAQ:GT) a worthy stock to buy now? Money managers are betting on the stock. The number of bullish hedge fund bets moved up by 5 recently. Our calculations also showed that GT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). GT was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 27 hedge funds in our database with GT holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the latest hedge fund action regarding The Goodyear Tire & Rubber Company (NASDAQ:GT).
What does smart money think about The Goodyear Tire & Rubber Company (NASDAQ:GT)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in GT 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.
More specifically, Lyrical Asset Management was the largest shareholder of The Goodyear Tire & Rubber Company (NASDAQ:GT), with a stake worth $145.3 million reported as of the end of September. Trailing Lyrical Asset Management was D E Shaw, which amassed a stake valued at $125.4 million. Citadel Investment Group, Arrowstreet Capital, and Millennium Management 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 Lyrical Asset Management allocated the biggest weight to The Goodyear Tire & Rubber Company (NASDAQ:GT), around 1.98% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, dishing out 0.84 percent of its 13F equity portfolio to GT.
As one would reasonably expect, key hedge funds have been driving this bullishness. Sandbar Asset Management, managed by Michael Cowley, created the largest position in The Goodyear Tire & Rubber Company (NASDAQ:GT). Sandbar Asset Management had $2.8 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Minhua Zhang’s Weld Capital Management, and Mika Toikka’s AlphaCrest Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Goodyear Tire & Rubber Company (NASDAQ:GT) but similarly valued. These stocks are Steven Madden, Ltd. (NASDAQ:SHOO), NorthWestern Corporation (NYSE:NWE), Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), and The Descartes Systems Group Inc (NASDAQ:DSGX). This group of stocks’ market caps are closest to GT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SHOO | 22 | 84910 | 2 |
| NWE | 19 | 167358 | 2 |
| AJRD | 21 | 436849 | 0 |
| DSGX | 12 | 97098 | -2 |
| Average | 18.5 | 196554 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $574 million in GT’s case. Steven Madden, Ltd. (NASDAQ:SHOO) is the most popular stock in this table. On the other hand The Descartes Systems Group Inc (NASDAQ:DSGX) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks The Goodyear Tire & Rubber Company (NASDAQ:GT) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately GT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GT were disappointed as the stock returned -60.1% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
