Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: AMETEK, Inc. (NYSE:AME).
Is AMETEK, Inc. (NYSE:AME) going to take off soon? Money managers are getting less optimistic. The number of long hedge fund positions were cut by 3 in recent months. Our calculations also showed that ame isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a glance at the latest hedge fund action surrounding AMETEK, Inc. (NYSE:AME).
How have hedgies been trading AMETEK, Inc. (NYSE:AME)?
At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AME over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in AMETEK, Inc. (NYSE:AME) was held by Citadel Investment Group, which reported holding $382 million worth of stock at the end of March. It was followed by GAMCO Investors with a $123.4 million position. Other investors bullish on the company included Adage Capital Management, Millennium Management, and Select Equity Group.
Since AMETEK, Inc. (NYSE:AME) has experienced declining sentiment from the smart money, it's easy to see that there was a specific group of fund managers who were dropping their positions entirely in the third quarter. At the top of the heap, Matt Simon (Citadel)'s Ashler Capital cut the largest stake of all the hedgies followed by Insider Monkey, valued at close to $21.4 million in call options. Alexander Mitchell's fund, Scopus Asset Management, also dropped its call options, about $6.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as AMETEK, Inc. (NYSE:AME) but similarly valued. These stocks are Harris Corporation (NYSE:HRS), American Water Works Company, Inc. (NYSE:AWK), Pembina Pipeline Corp (NYSE:PBA), and Splunk Inc (NASDAQ:SPLK). This group of stocks' market values match AME's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HRS,25,783732,2 AWK,28,609712,0 PBA,15,102666,1 SPLK,29,317583,4 Average,24.25,453423,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $453 million. That figure was $1039 million in AME's case. Splunk Inc (NASDAQ:SPLK) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 15 bullish hedge fund positions. AMETEK, Inc. (NYSE:AME) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AME, though not to the same extent, as the stock returned 1% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.