Ampco-Pittsburgh Corporation (AP): Hedge Fund Sentiment Unchanged
Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. 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 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Ampco-Pittsburgh Corporation (NYSE:AP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare AP to other stocks including B Communications Ltd (NASDAQ:BCOM), Asta Funding, Inc. (NASDAQ:ASFI), and voxeljet AG (NYSE:VJET) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_375529" align="aligncenter" width="450"]
Mario Gabelli of GAMCO Investors[/caption]
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. Keeping this in mind we're going to analyze the key hedge fund action regarding Ampco-Pittsburgh Corporation (NYSE:AP).
How have hedgies been trading Ampco-Pittsburgh Corporation (NYSE:AP)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AP over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ampco-Pittsburgh Corporation (NYSE:AP) was held by GAMCO Investors, which reported holding $5.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $1.8 million position. Other investors bullish on the company included Fairfax Financial Holdings, Royce & Associates, and Ancora Advisors. In terms of the portfolio weights assigned to each position Fairfax Financial Holdings allocated the biggest weight to Ampco-Pittsburgh Corporation (NYSE:AP), around 0.04% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to AP.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Ampco-Pittsburgh Corporation (NYSE:AP) but similarly valued. These stocks are B Communications Ltd (NASDAQ:BCOM), Asta Funding, Inc. (NASDAQ:ASFI), voxeljet AG (NYSE:VJET), and PLx Pharma Inc. (NASDAQ:PLXP). All of these stocks' market caps resemble AP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCOM,1,77,0 ASFI,1,149,0 VJET,2,294,0 PLXP,3,8128,0 Average,1.75,2162,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 1.75 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $9 million in AP's case. PLx Pharma Inc. (NASDAQ:PLXP) is the most popular stock in this table. On the other hand B Communications Ltd (NASDAQ:BCOM) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Ampco-Pittsburgh Corporation (NYSE:AP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AP were disappointed as the stock returned -7.1% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
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