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2019 Review: Most Favored Hedge Fund Stocks vs. Air Products & Chemicals, Inc. (APD)

Debasis Saha

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Air Products & Chemicals, Inc. (NYSE:APD) was in 38 hedge funds' portfolios at the end of the third quarter of 2019. APD shareholders have witnessed an increase in support from the world's most elite money managers in recent months. There were 32 hedge funds in our database with APD holdings at the end of the previous quarter. Our calculations also showed that APD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_673876" align="alignnone" width="1613"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to check out the new hedge fund action surrounding Air Products & Chemicals, Inc. (NYSE:APD).

What have hedge funds been doing with Air Products & Chemicals, Inc. (NYSE:APD)?

At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the second quarter of 2019. On the other hand, there were a total of 42 hedge funds with a bullish position in APD a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is APD A Good Stock To Buy?

More specifically, Two Sigma Advisors was the largest shareholder of Air Products & Chemicals, Inc. (NYSE:APD), with a stake worth $93.6 million reported as of the end of September. Trailing Two Sigma Advisors was Luminus Management, which amassed a stake valued at $78.2 million. AQR Capital Management, Freshford Capital Management, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Freshford Capital Management allocated the biggest weight to Air Products & Chemicals, Inc. (NYSE:APD), around 9.38% of its 13F portfolio. Claar Advisors is also relatively very bullish on the stock, earmarking 8.75 percent of its 13F equity portfolio to APD.

Now, key hedge funds have jumped into Air Products & Chemicals, Inc. (NYSE:APD) headfirst. Valinor Management, managed by David Gallo, established the most valuable position in Air Products & Chemicals, Inc. (NYSE:APD). Valinor Management had $20 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also made a $7.6 million investment in the stock during the quarter. The following funds were also among the new APD investors: Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Donald Sussman's Paloma Partners, and Benjamin A. Smith's Laurion Capital Management.

Let's check out hedge fund activity in other stocks similar to Air Products & Chemicals, Inc. (NYSE:APD). We will take a look at Kimberly Clark Corporation (NYSE:KMB), Waste Management, Inc. (NYSE:WM), American International Group Inc (NYSE:AIG), and TransCanada Corporation (NYSE:TRP). This group of stocks' market caps resemble APD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMB,40,1622264,0 WM,46,3533060,11 AIG,49,2451222,8 TRP,18,272298,6 Average,38.25,1969711,6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $1970 million. That figure was $479 million in APD's case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand TransCanada Corporation (NYSE:TRP) is the least popular one with only 18 bullish hedge fund positions. Air Products & Chemicals, Inc. (NYSE:APD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on APD as the stock returned 49.4% in 2019 through December 23rd and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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