What Hedge Funds Think About General Motors Company (GM)

Numerous individuals want to invest in equity markets and do the least amount of work possible, so particular investment products such as mutual funds or exchange-traded funds seem to be the best fit for such individuals. However, buying individual stocks can definitely be more rewarding, assuming investors pick the right stocks. But consider the following question: How can individual investors identify high-potential stocks? There are thousands of stocks individual investors can trade on a daily basis, and one way of narrowing down the search pool is to look at which stocks hedge fund vehicles love the most. Without further ado, let’s take a closer look at what the funds tracked by Insider Monkey think about General Motors Company (NYSE:GM) in this article.

Is General Motors Company (NYSE:GM) a cheap stock to buy now? The best stock pickers seem to be reducing their bets on the stock. The number of bullish hedge fund bets fell by four during the fourth quarter. GM was in 84 hedge funds’ portfolios at the end of the fourth quarter of 2015, compared to 88 hedge funds in our database with GM positions a quarter earlier. At the end of this article we will also compare GM to other stocks, including Time Warner Cable Inc. (NYSE:TWC), National Grid plc (ADR) (NYSE:NGG), and Baidu.com Inc. (ADR) (NASDAQ:BIDU) to get a better sense of its popularity.

Today there are several formulas market participants use to value stocks. Some of the less utilized formulas are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can trounce the S&P 500 by a significant amount (see the details here).

Before taking a look at the new action encompassing General Motors Company (NYSE:GM) across the hedge fund industry, let’s discuss possible reasons as for why some hedge fund managers are still bullish on the automaker. In a third-quarter letter to investors, investment firm Trapeze Asset Management, co-founded by Herbert and Randall Abramson, laid out the following thoughts on GM: “Beyond its undervaluation, there continues to be plenty that is noteworthy regarding General Motors. The company’s recently reported quarter had record unit sales in China and the company enjoyed an 18.2% North American market share in October. Additionally, the company’s longstanding target of 10% EBIT by 2016 appears to be a full year ahead of schedule. Additionally, the recent scandal at Volkswagen may help GM in China, its most important market. Our fair value estimate is $46 per share”.

Indeed, worries and concerns about the health of the world’s second-largest economy put some pressure on GM’s stock performance, but the company did manage to increase its market share in China during 2015. General Motors Company (NYSE:GM) sold 3.73 million vehicles in the country during 2015, thus grasping a market share of 14.9%, up from 3.54 million vehicles sold during 2014, when GM amassed a market share of 14.7%. According to fresh data, U.S. auto sales rose at a seasonally-adjusted rate of more than 17.5 million units in February, which marked a 16-year record for this month. Nonetheless, the biggest auto manufacturer in the United States, General Motors, sold only 227,000 new vehicles during the second month of 2015, which denoted a drop of 1.5% year-on-year. Trapeze Asset Management turned out to be right about Volkswagen’s recent scandal, as Volkswagen’s sales fell by 13%  year-on-year in February as the company is trying to get over its emissions scandal. Therefore, one can expect that GM is denifitely better off with Volkswagen struggling on the Chinese market. The shares of GM are down by 11% since the beginning of 2016 and are currently trading 5.26-times expected fiscal 2017 earnings, below the average forward P/E multiple of 7.00 for automobile manufacturers.

Now, we’re going to take a look at the new action encompassing

Hedge fund activity in General Motors Company (NYSE:GM)

Heading into 2016, a total of 84 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 5% from one quarter earlier. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the most valuable position in General Motors Company (NYSE:GM), worth close to $1.70 billion, corresponding to 1.3% of its total 13F portfolio. The second largest stake is held by Greenlight Capital, managed by David Einhorn, which holds a $473.5 million position; the fund has 8.7% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of David Tepper’s Appaloosa Management LP, Cliff Asness’s AQR Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Since General Motors Company (NYSE:GM) has faced a declination in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of fund managers that slashed their entire stakes in the third quarter. Interestingly, Jamie Zimmerman’s Litespeed Management said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling close to $91.7 million in call options, and Matthew Halbower’s Pentwater Capital Management was right behind this move, as the fund cut about $86.2 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to General Motors Company (NYSE:GM). We will take a look at Time Warner Cable Inc. (NYSE:TWC), National Grid plc (ADR) (NYSE:NGG), Baidu.com, Inc. (ADR) (NASDAQ:BIDU), and salesforce.com inc. (NYSE:CRM). This group of stocks’ market caps resemble GM’s market cap.

As you can see these stocks had an average of 57 hedge funds with bullish positions and the average amount invested in these stocks was $5.31 billion. That figure was $4.93 billion in GM’s case. Time Warner Cable Inc. (NYSE:TWC) is the most popular stock in this table. On the other hand National Grid plc (ADR) (NYSE:NGG) is the least popular one with only seven bullish hedge fund positions. General Motors Company (NYSE:GM) is not the most popular stock in this group, but hedge fund interest is still above average.

Disclosure: None