Were Hedge Funds Right About Axalta (AXTA)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Axalta Coating Systems Ltd (NYSE:AXTA).

Is Axalta Coating Systems Ltd (NYSE:AXTA) going to take off soon? The best stock pickers were becoming hopeful. The number of bullish hedge fund bets went up by 1 recently. Axalta Coating Systems Ltd (NYSE:AXTA) was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 60. Our calculations also showed that AXTA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

To most shareholders, hedge funds are seen as slow, old financial vehicles of years past. While there are over 8000 funds in operation at present, We hone in on the aristocrats of this group, approximately 850 funds. It is estimated that this group of investors oversee bulk of all hedge funds’ total capital, and by shadowing their finest investments, Insider Monkey has deciphered numerous investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

John Petry Sessa Capital

John Petry of Sessa Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a peek at the key hedge fund action encompassing Axalta Coating Systems Ltd (NYSE:AXTA).

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

At the end of December, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in AXTA over the last 22 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is AXTA A Good Stock To Buy?

More specifically, Berkshire Hathaway was the largest shareholder of Axalta Coating Systems Ltd (NYSE:AXTA), with a stake worth $668.6 million reported as of the end of December. Trailing Berkshire Hathaway was Rivulet Capital, which amassed a stake valued at $182.5 million. Citadel Investment Group, Sessa 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 Rivulet Capital allocated the biggest weight to Axalta Coating Systems Ltd (NYSE:AXTA), around 9.03% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, designating 5.7 percent of its 13F equity portfolio to AXTA.

As industrywide interest jumped, key money managers were breaking ground themselves. Lakewood Capital Management, managed by Anthony Bozza, initiated the most outsized position in Axalta Coating Systems Ltd (NYSE:AXTA). Lakewood Capital Management had $38.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $32.8 million position during the quarter. The other funds with brand new AXTA positions are Phill Gross and Robert Atchinson’s Adage Capital Management, David Zorub’s Parsifal Capital Management, and John Brennan’s Sirios Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Axalta Coating Systems Ltd (NYSE:AXTA). We will take a look at Planet Fitness Inc (NYSE:PLNT), nCino, Inc. (NASDAQ:NCNO), Manhattan Associates, Inc. (NASDAQ:MANH), PVH Corp (NYSE:PVH), Post Holdings Inc (NYSE:POST), ITT Inc. (NYSE:ITT), and Futu Holdings Limited (NASDAQ:FUTU). This group of stocks’ market valuations match AXTA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLNT 47 1704616 2
NCNO 28 177115 2
MANH 23 288212 1
PVH 37 1132304 9
POST 27 1536661 -3
ITT 28 406807 -2
FUTU 17 334170 2
Average 29.6 797126 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $797 million. That figure was $1667 million in AXTA’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Futu Holdings Limited (NASDAQ:FUTU) is the least popular one with only 17 bullish hedge fund positions. Axalta Coating Systems Ltd (NYSE:AXTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AXTA is 77.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately AXTA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AXTA were disappointed as the stock returned 11.7% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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