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In this article we are going to use hedge fund sentiment as a tool and determine whether Allison Transmission Holdings Inc (NYSE:ALSN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is ALSN stock a buy? Allison Transmission Holdings Inc (NYSE:ALSN) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. Allison Transmission Holdings Inc (NYSE:ALSN) was in 25 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 40. Our calculations also showed that ALSN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Dmitry Balyasny of Balyasny Asset Management
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Do Hedge Funds Think ALSN Is A Good Stock To Buy Now?
At the end of December, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in ALSN over the last 22 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Allison Transmission Holdings Inc (NYSE:ALSN), with a stake worth $258.9 million reported as of the end of December. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $79.6 million. GLG Partners, Balyasny Asset Management, and Millennium 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 Hickory Lane Capital Management allocated the biggest weight to Allison Transmission Holdings Inc (NYSE:ALSN), around 2.77% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, earmarking 1.42 percent of its 13F equity portfolio to ALSN.
Because Allison Transmission Holdings Inc (NYSE:ALSN) has experienced a decline in interest from hedge fund managers, it's safe to say that there were a few money managers that slashed their positions entirely last quarter. Intriguingly, Greg Eisner's Engineers Gate Manager said goodbye to the largest position of the 750 funds watched by Insider Monkey, comprising close to $4.4 million in stock. Donald Sussman's fund, Paloma Partners, also dropped its stock, about $1.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Allison Transmission Holdings Inc (NYSE:ALSN). These stocks are Essent Group Ltd (NYSE:ESNT), Pacific Biosciences of California, Inc. (NASDAQ:PACB), LiveRamp Holdings, Inc. (NYSE:RAMP), IDACORP Inc (NYSE:IDA), NCR Corporation (NYSE:NCR), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), and Curtiss-Wright Corp. (NYSE:CW). This group of stocks' market values match ALSN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESNT,32,296283,10 PACB,23,1483936,-2 RAMP,24,257256,-4 IDA,14,167230,-17 NCR,32,483312,0 SAIL,32,1002995,3 CW,23,245187,-3 Average,25.7,562314,-1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $562 million. That figure was $609 million in ALSN's case. Essent Group Ltd (NYSE:ESNT) is the most popular stock in this table. On the other hand IDACORP Inc (NYSE:IDA) is the least popular one with only 14 bullish hedge fund positions. Allison Transmission Holdings Inc (NYSE:ALSN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALSN is 49.3. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately ALSN wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); ALSN investors were disappointed as the stock returned 3.3% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.