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What the Smart Money Thinks of Wall Street’s Latest Upgrades

The spotlight is on several companies, with Adient plc (NYSE:ADNT)Delphi Automotive PLC (NYSE:DLPH)Martin Marietta Materials, Inc. (NYSE:MLM)Murphy Oil Corporation (NYSE:MUR), and Waddell & Reed Financial, Inc. (NYSE:WDR) notable among them after various institutions on Wall Street upgraded each stock. Let’s take a closer look at why analysts have upgraded the five and how the smart money is positioned amid the five.

Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Greenlight Capital

Shares of the auto supplier Adient plc (NYSE:ADNT) surged after analyst, John Murphy of Bank of America Merrill Lynch, upgraded the stock to ‘Buy’ from ‘Neutral’ and raised his target to $25 from the previous $19. Murphy thinks DelGrosso could execute a turnaround plan and that Adient will be able to temper any liquidity concerns by potentially soon refinancing its debt. ADNT has $3.41 billion in total nebt and rather thin margins, making DelGrosso’s execution all the more important. Some smart money funds like ADNT. According to our data, David Einhorn’s Greenlight Capital owned over 1.98 million shares of Adient plc (NYSE:ADNT) at the end of Q4, up 843,013 shares or 74% quarter over quarter. In terms of total numbers, however, 27 elite funds owned shares of Adient plc (NYSE:ADNT) at the end of the fourth quarter, down 2 funds from the previous quarter. That’s out of around 740 top funds we track.

Delphi Automotive PLC (NYSE:DLPH) shares closed 4% in the green on Friday after Bank of America upgraded Delphi Technologies to ‘Buy’ from ‘Neutral’. Analyst John Murphy expects new CEO Dauch’s business review will occur around mid-April and the analyst expects constructive updates around the company’s transformation plan. Around 5.73% of the float in Delphi is short, indicating that some elite funds might be betting against the stock. The stock is up around 76% year to date, however, but down almost half over the last four quarters.

Goldman Sachs analyst Jerry Revich upgraded Martin Marietta Materials, Inc. (NYSE:MLM) to ‘Buy’ from ‘Neutral’ citing an inflection in the aggregates pricing cycle, a possible return to the ‘steady recovery’ state in residential construction for the years 2020-2021 and a potential acceleration of expenditures covering infrastructure capital. 34 elite funds were long Martin Marietta Materials, Inc. (NYSE:MLM) as of the most recent 13-F reporting period.  That’s out of around 740 elite funds we track.

Murphy Oil Corporation (NYSE:MUR) shares rose almost 3% on Friday after Goldman upgraded the stock to ‘Neutral’ from ‘Sell’. Murphy shares are up 25% year to date but has a short float of around 10.09%, indicating that some elite funds might be a little cautious on the name.

Waddell & Reed Financial, Inc. (NYSE:WDR) is up 2.3% after Bank of America up graded the stock to ‘Neutral’ from ‘Underperform’. Analyst Michael Carrier cited WDR’s “very strong” balance sheet and valuation, as well as efficiency intiatives as reason for increasing his rating to ‘Neutral’. 21.7% of WDR’s float is short. The stock trades for a forward P/E ratio of around 11.86.

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