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Hedge Funds Are Betting On GATX Corporation (GATX)

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like GATX Corporation (NYSE:GATX).

Is GATX Corporation (NYSE:GATX) undervalued? Investors who are in the know are getting more bullish. The number of long hedge fund bets moved up by 2 recently. Our calculations also showed that GATX isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Dmitry Balyasny

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the fresh hedge fund action surrounding GATX Corporation (NYSE:GATX).

What have hedge funds been doing with GATX Corporation (NYSE:GATX)?

At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the first quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in GATX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GATX_oct2019

The largest stake in GATX Corporation (NYSE:GATX) was held by GAMCO Investors, which reported holding $171.7 million worth of stock at the end of March. It was followed by AQR Capital Management with a $20.7 million position. Other investors bullish on the company included D E Shaw, Renaissance Technologies, and Balyasny Asset Management.

As industrywide interest jumped, specific money managers were breaking ground themselves. Renaissance Technologies created the most valuable position in GATX Corporation (NYSE:GATX). Renaissance Technologies had $3.1 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $3 million investment in the stock during the quarter. The other funds with brand new GATX positions are Ken Griffin's Citadel Investment Group, Benjamin A. Smith's Laurion Capital Management, and Paul Marshall and Ian Wace's Marshall Wace LLP.

Let's also examine hedge fund activity in other stocks similar to GATX Corporation (NYSE:GATX). These stocks are American Assets Trust, Inc (NYSE:AAT), Cabot Corporation (NYSE:CBT), American States Water Co (NYSE:AWR), and Washington Federal Inc. (NASDAQ:WAFD). All of these stocks' market caps resemble GATX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAT,15,127744,1 CBT,17,123633,-3 AWR,14,67350,-1 WAFD,9,59821,-6 Average,13.75,94637,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $225 million in GATX's case. Cabot Corporation (NYSE:CBT) is the most popular stock in this table. On the other hand Washington Federal Inc. (NASDAQ:WAFD) is the least popular one with only 9 bullish hedge fund positions. GATX Corporation (NYSE:GATX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately GATX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GATX investors were disappointed as the stock returned -1.7% during the third quarter 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 in 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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