We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Applied Industrial Technologies (NYSE:AIT) based on that data.
Hedge fund interest in Applied Industrial Technologies (NYSE:AIT) 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 AIT to other stocks including Cactus, Inc. (NYSE:WHD), Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB), and Appian Corporation (NASDAQ:APPN) to get a better sense of its popularity.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_255014" align="aligncenter" width="400"] Clint Carlson of Carlson Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the fresh hedge fund action encompassing Applied Industrial Technologies (NYSE:AIT).
Hedge fund activity in Applied Industrial Technologies (NYSE:AIT)
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AIT over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Carlson Capital was the largest shareholder of Applied Industrial Technologies (NYSE:AIT), with a stake worth $30.7 million reported as of the end of September. Trailing Carlson Capital was GLG Partners, which amassed a stake valued at $14 million. Royce & Associates, Marshall Wace LLP, and Renaissance Technologies 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 Invenomic Capital Management allocated the biggest weight to Applied Industrial Technologies (NYSE:AIT), around 1.41% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.81 percent of its 13F equity portfolio to AIT.
Since Applied Industrial Technologies (NYSE:AIT) has experienced a decline in interest from the smart money, we can see that there is a sect of money managers that elected to cut their positions entirely in the third quarter. At the top of the heap, Benjamin A. Smith's Laurion Capital Management sold off the biggest position of the 750 funds followed by Insider Monkey, valued at an estimated $0.6 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund dropped about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Applied Industrial Technologies (NYSE:AIT) but similarly valued. These stocks are Cactus, Inc. (NYSE:WHD), Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB), Appian Corporation (NASDAQ:APPN), and Weight Watchers International, Inc. (NASDAQ:WW). This group of stocks' market caps are closest to AIT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WHD,17,141028,-2 OMAB,6,67651,-1 APPN,17,380631,-2 WW,37,514487,6 Average,19.25,275949,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $116 million in AIT's case. Weight Watchers International, Inc. (NASDAQ:WW) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB) is the least popular one with only 6 bullish hedge fund positions. Applied Industrial Technologies (NYSE:AIT) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately AIT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AIT were disappointed as the stock returned -32.6% during the same time period 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 this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.