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Is General Dynamics (GD) Stock A Buy or Sell?

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Asma UL Husna
·6 min read
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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about General Dynamics Corporation (NYSE:GD).

Is GD stock a buy or sell? General Dynamics Corporation (NYSE:GD) investors should be aware of an increase in enthusiasm from smart money of late. General Dynamics Corporation (NYSE:GD) was in 40 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 51. There were 37 hedge funds in our database with GD holdings at the end of September. Our calculations also showed that GD isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

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 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 let's check out the recent hedge fund action encompassing General Dynamics Corporation (NYSE:GD).

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

At fourth quarter's end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GD over the last 22 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

More specifically, Longview Asset Management was the largest shareholder of General Dynamics Corporation (NYSE:GD), with a stake worth $4470.8 million reported as of the end of December. Trailing Longview Asset Management was Arrowstreet Capital, which amassed a stake valued at $117.4 million. Adage Capital Management, Abrams Bison Investments, and Markel Gayner Asset Management 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 Longview Asset Management allocated the biggest weight to General Dynamics Corporation (NYSE:GD), around 95.97% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, dishing out 6.64 percent of its 13F equity portfolio to GD.

As industrywide interest jumped, key money managers have been driving this bullishness. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), initiated the biggest position in General Dynamics Corporation (NYSE:GD). Schonfeld Strategic Advisors had $3.3 million invested in the company at the end of the quarter. Peter Avellone's Cartenna Capital also made a $2.3 million investment in the stock during the quarter. The following funds were also among the new GD investors: Michael Gelband's ExodusPoint Capital, Parvinder Thiara's Athanor Capital, and Matthew Tewksbury's Stevens Capital Management.

Let's go over hedge fund activity in other stocks similar to General Dynamics Corporation (NYSE:GD). These stocks are IDEXX Laboratories, Inc. (NASDAQ:IDXX), Constellation Brands, Inc. (NYSE:STZ), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), The Kraft Heinz Company (NASDAQ:KHC), Metlife Inc (NYSE:MET), Roku, Inc. (NASDAQ:ROKU), and Align Technology, Inc. (NASDAQ:ALGN). All of these stocks' market caps are similar to GD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IDXX,46,2697821,5 STZ,58,1768371,5 SMFG,10,92749,2 KHC,36,11558217,-3 MET,37,983027,1 ROKU,60,3237943,1 ALGN,50,2480630,3 Average,42.4,3259823,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $3260 million. That figure was $4955 million in GD's case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. General Dynamics Corporation (NYSE:GD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GD is 61.5. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. A small number of hedge funds were also right about betting on GD as the stock returned 20.2% since the end of the fourth quarter (through 3/19) 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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