Is General American Investors Company, Inc. (GAM) A Good Stock To Buy?
Is General American Investors Company, Inc. (NYSE:GAM) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is GAM a good stock to buy? Hedge fund interest in General American Investors Company, Inc. (NYSE:GAM) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that GAM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Talos Energy, Inc. (NYSE:TALO), Radius Health Inc (NASDAQ:RDUS), and Ikena Oncology, Inc. (NASDAQ:IKNA) to gather more data points.
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 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 115 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 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.
Phillip Goldstein of Bulldog Investors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. 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. Keeping this in mind we're going to take a look at the recent hedge fund action surrounding General American Investors Company, Inc. (NYSE:GAM).
Do Hedge Funds Think GAM Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GAM over the last 23 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Boaz Weinstein's Saba Capital has the number one position in General American Investors Company, Inc. (NYSE:GAM), worth close to $17.4 million, corresponding to 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Phillip Goldstein, Andrew Dakos and Steven Samuels of Bulldog Investors, with a $11.5 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish contain John A. Levin's Levin Capital Strategies, Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk's GRT Capital Partners and . In terms of the portfolio weights assigned to each position Bulldog Investors allocated the biggest weight to General American Investors Company, Inc. (NYSE:GAM), around 3.37% of its 13F portfolio. Saba Capital is also relatively very bullish on the stock, dishing out 0.56 percent of its 13F equity portfolio to GAM.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as General American Investors Company, Inc. (NYSE:GAM) but similarly valued. We will take a look at Talos Energy, Inc. (NYSE:TALO), Radius Health Inc (NASDAQ:RDUS), Ikena Oncology, Inc. (NASDAQ:IKNA), Wabash National Corporation (NYSE:WNC), Mesoblast Limited (NASDAQ:MESO), Houghton Mifflin Harcourt Co (NASDAQ:HMHC), and MannKind Corporation (NASDAQ:MNKD). This group of stocks' market valuations resemble GAM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TALO,10,53220,-4 RDUS,21,142038,2 IKNA,13,295677,13 WNC,14,87683,0 MESO,2,568,1 HMHC,25,139127,0 MNKD,12,87910,1 Average,13.9,115175,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $33 million in GAM's case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 2 bullish hedge fund positions. General American Investors Company, Inc. (NYSE:GAM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GAM is 26.5. 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 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on GAM as the stock returned 10.6% since the end of the first quarter (through 6/11) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
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