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Should I Avoid Allegheny Technologies Incorporated (ATI)?

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Allegheny Technologies Incorporated (NYSE:ATI)? The smart money sentiment can provide an answer to this question.

Is Allegheny Technologies Incorporated (NYSE:ATI) ready to rally soon? Money managers were taking a pessimistic view. The number of long hedge fund positions dropped by 2 lately. Allegheny Technologies Incorporated (NYSE:ATI) was in 26 hedge funds' portfolios at the end of September. 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 Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. With all of this in mind let's take a gander at the fresh hedge fund action regarding Allegheny Technologies Incorporated (NYSE:ATI).

Marc Lasry
Marc Lasry

Marc Lasry of Avenue Capital

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

Heading into the fourth quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ATI over the last 25 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Allegheny Technologies Incorporated (NYSE:ATI) was held by D E Shaw, which reported holding $67.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $40.5 million position. Other investors bullish on the company included Millennium Management, Royce & Associates, and Millennium Management. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to Allegheny Technologies Incorporated (NYSE:ATI), around 6.11% of its 13F portfolio. Roubaix Capital is also relatively very bullish on the stock, earmarking 3.44 percent of its 13F equity portfolio to ATI.

Seeing as Allegheny Technologies Incorporated (NYSE:ATI) has witnessed bearish sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few money managers that decided to sell off their positions entirely in the third quarter. It's worth mentioning that Mika Toikka's AlphaCrest Capital Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, valued at an estimated $0.7 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund dumped about $0.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Allegheny Technologies Incorporated (NYSE:ATI). We will take a look at Retail Opportunity Investments Corp (NASDAQ:ROIC), Barnes Group Inc. (NYSE:B), Chesapeake Utilities Corporation (NYSE:CPK), Jack in the Box Inc. (NASDAQ:JACK), IGM Biosciences, Inc. (NASDAQ:IGMS), Cronos Group Inc. (NASDAQ:CRON), and ThredUp Inc. (NASDAQ:TDUP). 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 ROIC,19,121542,-1 B,15,65552,3 CPK,3,5882,-3 JACK,26,179665,-3 IGMS,13,573560,0 CRON,7,65096,-1 TDUP,12,245959,-1 Average,13.6,179608,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $256 million in ATI's case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Chesapeake Utilities Corporation (NYSE:CPK) is the least popular one with only 3 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 80.9. 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 31.1% in 2021 through December 9th and beat the market again by 5.1 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 -10.6% since the end of September (through 12/9) 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.