Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to General Dynamics Corporation (NYSE:GD) changed recently.
General Dynamics Corporation (NYSE:GD) has seen an increase in activity from the world's largest hedge funds of late. GD was in 42 hedge funds' portfolios at the end of the first quarter of 2019. There were 37 hedge funds in our database with GD holdings at the end of the previous quarter. Our calculations also showed that gd isn't among the 30 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to analyze the recent hedge fund action encompassing General Dynamics Corporation (NYSE:GD).
What have hedge funds been doing with General Dynamics Corporation (NYSE:GD)?
Heading into the second quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in GD over the last 15 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, James A. Star's Longview Asset Management has the biggest position in General Dynamics Corporation (NYSE:GD), worth close to $5.569 billion, accounting for 93.8% of its total 13F portfolio. On Longview Asset Management's heels is Farallon Capital, led by Thomas Steyer, holding a $183.1 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Phill Gross and Robert Atchinson's Adage Capital Management, Jim Simons's Renaissance Technologies and Tom Gayner's Markel Gayner Asset Management.
Now, key money managers were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, initiated the largest position in General Dynamics Corporation (NYSE:GD). Renaissance Technologies had $113.1 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also initiated a $58.2 million position during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, David Costen Haley's HBK Investments, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as General Dynamics Corporation (NYSE:GD) but similarly valued. We will take a look at Exelon Corporation (NYSE:EXC), Allergan plc (NYSE:AGN), Tesla Inc. (NASDAQ:TSLA), and Zoetis Inc (NYSE:ZTS). This group of stocks' market values are similar to GD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXC,33,2513347,0 AGN,53,3989971,-8 TSLA,32,1066853,-15 ZTS,37,2348595,-8 Average,38.75,2479692,-7.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $2480 million. That figure was $6460 million in GD's case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 32 bullish hedge fund positions. General Dynamics Corporation (NYSE:GD) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately GD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GD were disappointed as the stock returned -3.6% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.