Were Hedge Funds Right About Piling Into Howmet Aerospace (HWM)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Howmet Aerospace Inc. (NYSE:HWM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Howmet Aerospace Inc. (NYSE:HWM) was in 49 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 46. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. HWM has experienced an increase in hedge fund interest of late. There were 35 hedge funds in our database with HWM holdings at the end of September. Our calculations also showed that HWM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Paul Singer of Elliott Management

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 look at the recent hedge fund action regarding Howmet Aerospace Inc. (NYSE:HWM).

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

Heading into the first quarter of 2021, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HWM over the last 22 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Howmet Aerospace Inc. (NYSE:HWM) was held by Elliott Investment Management, which reported holding $1186.3 million worth of stock at the end of December. It was followed by Orbis Investment Management with a $805 million position. Other investors bullish on the company included Kensico Capital, First Pacific Advisors LLC, and Lone Pine Capital. In terms of the portfolio weights assigned to each position Elliott Investment Management allocated the biggest weight to Howmet Aerospace Inc. (NYSE:HWM), around 11.57% of its 13F portfolio. Kensico Capital is also relatively very bullish on the stock, setting aside 7.28 percent of its 13F equity portfolio to HWM.

Now, key money managers have jumped into Howmet Aerospace Inc. (NYSE:HWM) headfirst. Egerton Capital Limited, managed by John Armitage, initiated the most outsized position in Howmet Aerospace Inc. (NYSE:HWM). Egerton Capital Limited had $113.3 million invested in the company at the end of the quarter. Zach Schreiber’s Point State Capital also initiated a $42.4 million position during the quarter. The other funds with brand new HWM positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Javier Velazquez’s Albar Capital, and Michael Cowley’s Sandbar Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Howmet Aerospace Inc. (NYSE:HWM) but similarly valued. These stocks are Loews Corporation (NYSE:L), Opendoor Technologies Inc. (NASDAQ:OPEN), Jack Henry & Associates, Inc. (NASDAQ:JKHY), GSX Techedu Inc. (NYSE:GSX), NortonLifeLock Inc. (NASDAQ:NLOK), Bio-Techne Corporation (NASDAQ:TECH), and Dynatrace, Inc. (NYSE:DT). This group of stocks’ market valuations resemble HWM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
L 19 174655 1
OPEN 28 1024602 28
JKHY 28 411775 -2
GSX 17 235770 -1
NLOK 29 1000796 -5
TECH 24 301777 -6
DT 53 2023929 7
Average 28.3 739043 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $739 million. That figure was $4092 million in HWM’s case. Dynatrace, Inc. (NYSE:DT) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 17 bullish hedge fund positions. Howmet Aerospace Inc. (NYSE:HWM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HWM is 84.4. 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 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 still beat the market by 1.6 percentage points. Hedge funds were also right about betting on HWM, though not to the same extent, as the stock returned 12% since Q4 (through April 30th) and outperformed the market as well.

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