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Is Applied Industrial Technologies, Inc. (AIT) A Good Stock To Buy?

Abigail Fisher

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Applied Industrial Technologies, Inc. (NYSE:AIT).

Applied Industrial Technologies, Inc. (NYSE:AIT) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that AIT isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

AIT_oct2019
AIT_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the latest hedge fund action surrounding Applied Industrial Technologies, Inc. (NYSE:AIT).

What have hedge funds been doing with Applied Industrial Technologies, Inc. (NYSE:AIT)?

Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AIT over the last 16 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Clint Carlson, Carlson Capital
Clint Carlson, Carlson Capital

Among these funds, Adage Capital Management held the most valuable stake in Applied Industrial Technologies, Inc. (NYSE:AIT), which was worth $31.1 million at the end of the second quarter. On the second spot was Carlson Capital which amassed $24 million worth of shares. Moreover, Royce & Associates, Balyasny Asset Management, and Millennium Management were also bullish on Applied Industrial Technologies, Inc. (NYSE:AIT), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, key money managers were leading the bulls' herd. ExodusPoint Capital, managed by Michael Gelband, established the largest position in Applied Industrial Technologies, Inc. (NYSE:AIT). ExodusPoint Capital had $0.3 million invested in the company at the end of the quarter. Mike Vranos's Ellington also initiated a $0.2 million position during the quarter. The following funds were also among the new AIT investors: Brandon Haley's Holocene Advisors, Matthew Hulsizer's PEAK6 Capital Management, and Steve Cohen's Point72 Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Applied Industrial Technologies, Inc. (NYSE:AIT) but similarly valued. We will take a look at Cactus, Inc. (NYSE:WHD), Evertec Inc (NYSE:EVTC), Quidel Corporation (NASDAQ:QDEL), and National Vision Holdings, Inc. (NASDAQ:EYE). All of these stocks' market caps resemble AIT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WHD,24,210166,-3 EVTC,22,307810,1 QDEL,14,91509,-4 EYE,21,415880,5 Average,20.25,256341,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $109 million in AIT's case. Cactus, Inc. (NYSE:WHD) is the most popular stock in this table. On the other hand Quidel Corporation (NASDAQ:QDEL) is the least popular one with only 14 bullish hedge fund positions. Applied Industrial Technologies, Inc. (NYSE:AIT) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AIT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AIT investors were disappointed as the stock returned -7.2% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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