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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Axalta Coating Systems Ltd (NYSE:AXTA).
Is AXTA a good stock to buy now? Axalta Coating Systems Ltd (NYSE:AXTA) was in 45 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 60. AXTA has seen a decrease in hedge fund interest lately. There were 47 hedge funds in our database with AXTA holdings at the end of June. Our calculations also showed that AXTA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are dozens of indicators shareholders use to evaluate their stock investments. A duo of the less utilized indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform the broader indices by a superb margin (see the details here).
John Petry of Sessa Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we're going to take a look at the latest hedge fund action regarding Axalta Coating Systems Ltd (NYSE:AXTA).
Do Hedge Funds Think AXTA Is A Good Stock To Buy Now?
At third quarter's end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 60 hedge funds with a bullish position in AXTA a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Axalta Coating Systems Ltd (NYSE:AXTA) was held by Berkshire Hathaway, which reported holding $519.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $170 million position. Other investors bullish on the company included Rivulet Capital, Millennium Management, and Sessa Capital. In terms of the portfolio weights assigned to each position Rivulet Capital allocated the biggest weight to Axalta Coating Systems Ltd (NYSE:AXTA), around 7.22% of its 13F portfolio. Sessa Capital is also relatively very bullish on the stock, earmarking 4.05 percent of its 13F equity portfolio to AXTA.
Due to the fact that Axalta Coating Systems Ltd (NYSE:AXTA) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of money managers that slashed their full holdings last quarter. Intriguingly, Ricky Sandler's Eminence Capital sold off the biggest stake of the 750 funds watched by Insider Monkey, totaling close to $53.9 million in stock, and Barry Rosenstein's JANA Partners was right behind this move, as the fund dumped about $43 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Axalta Coating Systems Ltd (NYSE:AXTA) but similarly valued. We will take a look at MSA Safety Incorporated (NYSE:MSA), Lithia Motors Inc (NYSE:LAD), Jabil Inc. (NYSE:JBL), Dicks Sporting Goods Inc (NYSE:DKS), Flowers Foods, Inc. (NYSE:FLO), Tetra Tech, Inc. (NASDAQ:TTEK), and Grupo Aval Acciones y Valores S.A. (NYSE:AVAL). This group of stocks' market values resemble AXTA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSA,14,18753,-12 LAD,49,1149267,18 JBL,31,399819,0 DKS,41,626418,1 FLO,30,298843,6 TTEK,22,88894,3 AVAL,4,9119,-5 Average,27.3,370159,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $370 million. That figure was $1221 million in AXTA's case. Lithia Motors Inc (NYSE:LAD) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 4 bullish hedge fund positions. Axalta Coating Systems Ltd (NYSE:AXTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AXTA is 71.1. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on AXTA as the stock returned 30% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.