Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Mohawk Industries, Inc. (NYSE:MHK).
Is Mohawk Industries, Inc. (NYSE:MHK) a healthy stock for your portfolio? Investors who are in the know are becoming more confident. The number of bullish hedge fund bets increased by 5 in recent months. Our calculations also showed that MHK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). MHK was in 40 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 35 hedge funds in our database with MHK positions at the end of the previous quarter.
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 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_338852" align="aligncenter" width="399"] Richard S. Pzena of Pzena Investment Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's analyze the latest hedge fund action regarding Mohawk Industries, Inc. (NYSE:MHK).
How have hedgies been trading Mohawk Industries, Inc. (NYSE:MHK)?
At Q4's end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the third quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in MHK a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Eagle Capital Management was the largest shareholder of Mohawk Industries, Inc. (NYSE:MHK), with a stake worth $481.5 million reported as of the end of September. Trailing Eagle Capital Management was Pzena Investment Management, which amassed a stake valued at $277.5 million. FPR Partners, Ariel Investments, and First Pacific Advisors LLC 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 SG Capital Management allocated the biggest weight to Mohawk Industries, Inc. (NYSE:MHK), around 4.09% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, setting aside 3.55 percent of its 13F equity portfolio to MHK.
As one would reasonably expect, some big names have been driving this bullishness. Renaissance Technologies, created the most outsized position in Mohawk Industries, Inc. (NYSE:MHK). Renaissance Technologies had $27.9 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider's SG Capital Management also initiated a $20.8 million position during the quarter. The following funds were also among the new MHK investors: Cliff Asness's AQR Capital Management, Mark Coe's Intrinsic Edge Capital, and Robert Vincent McHugh's Jade Capital Advisors.
Let's check out hedge fund activity in other stocks similar to Mohawk Industries, Inc. (NYSE:MHK). We will take a look at Amdocs Limited (NASDAQ:DOX), Federal Realty Investment Trust (NYSE:FRT), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), and Universal Display Corporation (NASDAQ:OLED). All of these stocks' market caps match MHK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DOX,26,623312,0 FRT,22,108682,-4 AVAL,7,22903,0 OLED,31,329009,5 Average,21.5,270977,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $271 million. That figure was $1437 million in MHK's case. Universal Display Corporation (NASDAQ:OLED) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Mohawk Industries, Inc. (NYSE:MHK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately MHK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MHK were disappointed as the stock returned -37.4% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.