Were These Hedge Funds Right About Selling Spirit AeroSystems Holdings, Inc. (SPR)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Spirit AeroSystems Holdings, Inc. (NYSE:SPR) 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.

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. SPR has seen a decrease in support from the world’s most elite money managers in recent months. There were 38 hedge funds in our database with SPR holdings at the end of March. Our calculations also showed that SPR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

According to most stock holders, hedge funds are perceived as underperforming, outdated investment vehicles of the past. While there are greater than 8000 funds trading at present, We hone in on the moguls of this group, about 850 funds. Most estimates calculate that this group of people control the lion’s share of the smart money’s total asset base, and by shadowing their highest performing investments, Insider Monkey has come up with several investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Jeffrey Altman Owl Creek

Jeffrey Altman of Owl Creek Asset Management

At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to take a glance at the new hedge fund action encompassing Spirit AeroSystems Holdings, Inc. (NYSE:SPR).

What does smart money think about Spirit AeroSystems Holdings, Inc. (NYSE:SPR)?

Heading into the third quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. On the other hand, there were a total of 31 hedge funds with a bullish position in SPR 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.

Is SPR A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Anand Desai’s Darsana Capital Partners has the number one position in Spirit AeroSystems Holdings, Inc. (NYSE:SPR), worth close to $167.6 million, amounting to 9.9% of its total 13F portfolio. Coming in second is Scopia Capital, led by Matt Sirovich and Jeremy Mindich, holding a $144 million position; the fund has 15.8% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass Daniel S. Och’s OZ Management, Ryan Pedlow’s Two Creeks Capital Management and Len Kipp and Xavier Majic’s Maple Rock Capital. In terms of the portfolio weights assigned to each position Scopia Capital allocated the biggest weight to Spirit AeroSystems Holdings, Inc. (NYSE:SPR), around 15.84% of its 13F portfolio. Darsana Capital Partners is also relatively very bullish on the stock, dishing out 9.93 percent of its 13F equity portfolio to SPR.

Seeing as Spirit AeroSystems Holdings, Inc. (NYSE:SPR) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds that decided to sell off their entire stakes heading into Q3. It’s worth mentioning that Seth Klarman’s Baupost Group said goodbye to the largest position of all the hedgies followed by Insider Monkey, worth close to $25.6 million in stock. Jonathan Auerbach’s fund, Hound Partners, also dumped its stock, about $18.8 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Spirit AeroSystems Holdings, Inc. (NYSE:SPR). These stocks are Workiva Inc (NYSE:WK), The Chemours Company (NYSE:CC), Casella Waste Systems Inc. (NASDAQ:CWST), eHealth, Inc. (NASDAQ:EHTH), Wintrust Financial Corporation (NASDAQ:WTFC), Trinity Industries, Inc. (NYSE:TRN), and Insperity Inc (NYSE:NSP). All of these stocks’ market caps resemble SPR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WK 21 225806 5
CC 35 389444 3
CWST 16 168060 0
EHTH 30 362328 -5
WTFC 23 141490 -4
TRN 25 824807 7
NSP 29 280537 0
Average 25.6 341782 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $663 million in SPR’s case. The Chemours Company (NYSE:CC) is the most popular stock in this table. On the other hand Casella Waste Systems Inc. (NASDAQ:CWST) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is more popular among hedge funds. Our overall hedge fund sentiment score for SPR is 76.2. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately SPR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPR were disappointed as the stock returned -24% since the end of the second quarter (through 10/30) 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 most of these stocks already outperformed the market in 2020.

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