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Should I Avoid Allegheny Technologies Incorporated (ATI)?

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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 fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. 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 Allegheny Technologies Incorporated (NYSE:ATI).

Is Allegheny Technologies Incorporated (NYSE:ATI) going to take off soon? Hedge funds were getting less bullish. The number of bullish hedge fund positions fell by 7 lately. Allegheny Technologies Incorporated (NYSE:ATI) was in 20 hedge funds' portfolios at the end of March. The all time high for this statistic is 28. Our calculations also showed that ATI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 27 hedge funds in our database with ATI 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.

Billionaire David Siegel's Top 10 Stock Picks
Billionaire David Siegel's Top 10 Stock Picks

David Siegel of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. With all of this in mind we're going to analyze the fresh hedge fund action regarding Allegheny Technologies Incorporated (NYSE:ATI).

Do Hedge Funds Think ATI Is A Good Stock To Buy Now?

At the end of March, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in ATI over the last 23 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Allegheny Technologies Incorporated (NYSE:ATI), which was worth $80.6 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $55.9 million worth of shares. Two Sigma Advisors, Royce & Associates, and Moore Global Investments 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 Mountaineer Partners Management allocated the biggest weight to Allegheny Technologies Incorporated (NYSE:ATI), around 6.45% of its 13F portfolio. Roubaix Capital is also relatively very bullish on the stock, dishing out 2.5 percent of its 13F equity portfolio to ATI.

Seeing as Allegheny Technologies Incorporated (NYSE:ATI) has experienced bearish sentiment from the smart money, it's easy to see that there were a few funds that elected to cut their full holdings heading into Q2. At the top of the heap, Israel Englander's Millennium Management sold off the largest position of the 750 funds tracked by Insider Monkey, comprising close to $25.1 million in stock, and Renaissance Technologies was right behind this move, as the fund dropped about $4.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 7 funds heading into Q2.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Allegheny Technologies Incorporated (NYSE:ATI) but similarly valued. We will take a look at SPX FLOW, Inc. (NYSE:FLOW), Broadstone Net Lease, Inc. (NYSE:BNL), Main Street Capital Corporation (NYSE:MAIN), Sunoco LP (NYSE:SUN), Surgery Partners, Inc. (NASDAQ:SGRY), Plexus Corp. (NASDAQ:PLXS), and SVMK Inc. (NASDAQ:SVMK). This group of stocks' market values are closest to ATI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLOW,16,193826,4 BNL,9,26568,-2 MAIN,10,33906,3 SUN,2,821,-1 SGRY,10,139528,-5 PLXS,14,75816,-3 SVMK,32,204010,0 Average,13.3,96354,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $295 million in ATI's case. SVMK Inc. (NASDAQ:SVMK) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 2 bullish hedge fund positions. Allegheny Technologies Incorporated (NYSE:ATI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ATI is 49.4. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately ATI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ATI were disappointed as the stock returned -4.5% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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