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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Alcoa Corporation (NYSE:AA) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is Alcoa Corporation (NYSE:AA) undervalued? Money managers were getting more bullish. The number of long hedge fund positions advanced by 5 in recent months. Alcoa Corporation (NYSE:AA) was in 38 hedge funds' portfolios at the end of March. The all time high for this statistic is 46. Our calculations also showed that AA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 33 hedge funds in our database with AA positions at the end of the fourth quarter.
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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
William Gray of Orbis Investment 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 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to view the new hedge fund action surrounding Alcoa Corporation (NYSE:AA).
Do Hedge Funds Think AA Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AA over the last 23 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Alcoa Corporation (NYSE:AA) was held by Fisher Asset Management, which reported holding $225 million worth of stock at the end of December. It was followed by Orbis Investment Management with a $216.5 million position. Other investors bullish on the company included Two Sigma Advisors, Renaissance Technologies, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Alcoa Corporation (NYSE:AA), around 7.9% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, setting aside 4.14 percent of its 13F equity portfolio to AA.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the biggest position in Alcoa Corporation (NYSE:AA). Adage Capital Management had $13 million invested in the company at the end of the quarter. David Greenspan's Slate Path Capital also made a $12.5 million investment in the stock during the quarter. The following funds were also among the new AA investors: Michael Gelband's ExodusPoint Capital, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Steve Cohen's Point72 Asset Management.
Let's check out hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). These stocks are LHC Group, Inc. (NASDAQ:LHCG), Chindata Group Holdings Limited (NASDAQ:CD), Pure Storage, Inc. (NYSE:PSTG), Ingredion Incorporated (NYSE:INGR), Healthcare Trust Of America Inc (NYSE:HTA), Twist Bioscience Corporation (NASDAQ:TWST), and Olin Corporation (NYSE:OLN). All of these stocks' market caps match AA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LHCG,18,77772,-7 CD,9,127683,-3 PSTG,30,1090136,9 INGR,25,455337,1 HTA,17,119726,3 TWST,24,1115257,1 OLN,34,1170833,11 Average,22.4,593821,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $594 million. That figure was $1003 million in AA's case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Chindata Group Holdings Limited (NASDAQ:CD) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Alcoa Corporation (NYSE:AA) is more popular among hedge funds. Our overall hedge fund sentiment score for AA is 84.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still managed to beat the market by 4.8 percentage points. Hedge funds were also right about betting on AA, though not to the same extent, as the stock returned 10.2% since the end of March (through June 25th) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.