Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Alexander & Baldwin Inc (NYSE:ALEX).
Alexander & Baldwin Inc (NYSE:ALEX) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. Alexander & Baldwin Inc (NYSE:ALEX) was in 15 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 18. There were 13 hedge funds in our database with ALEX positions at the end of the second quarter. Our calculations also showed that ALEX isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we’re going to review the new hedge fund action surrounding Alexander & Baldwin Inc (NYSE:ALEX).
Do Hedge Funds Think ALEX Is A Good Stock To Buy Now?
At the end of September, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in ALEX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in Alexander & Baldwin Inc (NYSE:ALEX). D E Shaw has a $6.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Noam Gottesman of GLG Partners, with a $6.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Chuck Royce’s Royce & Associates and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Gratia Capital allocated the biggest weight to Alexander & Baldwin Inc (NYSE:ALEX), around 5.38% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, designating 1.1 percent of its 13F equity portfolio to ALEX.
As one would reasonably expect, specific money managers were breaking ground themselves. Royce & Associates, managed by Chuck Royce, created the largest position in Alexander & Baldwin Inc (NYSE:ALEX). Royce & Associates had $3.9 million invested in the company at the end of the quarter. Steve Pei’s Gratia Capital also made a $1.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Paul Tudor Jones’s Tudor Investment Corp, and Minhua Zhang’s Weld Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Alexander & Baldwin Inc (NYSE:ALEX) but similarly valued. These stocks are GreenSky, Inc. (NASDAQ:GSKY), Associated Capital Group, Inc. (NYSE:AC), Endurance International Group Holdings Inc (NASDAQ:EIGI), Southside Bancshares, Inc. (NASDAQ:SBSI), Provident Financial Services, Inc. (NYSE:PFS), Pliant Therapeutics, Inc. (NASDAQ:PLRX), and National Bank Holdings Corp (NYSE:NBHC). This group of stocks’ market values resemble ALEX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 9.7 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $33 million in ALEX’s case. Endurance International Group Holdings Inc (NASDAQ:EIGI) is the most popular stock in this table. On the other hand Associated Capital Group, Inc. (NYSE:AC) is the least popular one with only 5 bullish hedge fund positions. Alexander & Baldwin Inc (NYSE:ALEX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALEX is 77.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on ALEX as the stock returned 43.9% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.