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Is PPG Industries, Inc. (PPG) Going to Burn These Hedge Funds?

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  • PPG

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards PPG Industries, Inc. (NYSE:PPG).

Is PPG Industries, Inc. (NYSE:PPG) going to take off soon? The best stock pickers were taking an optimistic view. The number of bullish hedge fund bets improved by 1 in recent months. PPG Industries, Inc. (NYSE:PPG) was in 26 hedge funds' portfolios at the end of June. The all time high for this statistic is 51. Our calculations also showed that PPG isn't among the 30 most popular stocks among hedge funds (click for Q2 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

best dividend stocks according to Ray Dalio
best dividend stocks according to Ray Dalio

Ray Dalio of Bridgewater Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to take a gander at the key hedge fund action encompassing PPG Industries, Inc. (NYSE:PPG).

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

At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the first quarter of 2020. By comparison, 36 hedge funds held shares or bullish call options in PPG a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PPG A Good Stock To Buy?
Is PPG A Good Stock To Buy?

More specifically, Adage Capital Management was the largest shareholder of PPG Industries, Inc. (NYSE:PPG), with a stake worth $43.5 million reported as of the end of June. Trailing Adage Capital Management was Bridgewater Associates, which amassed a stake valued at $42.6 million. Candlestick Capital Management, AQR Capital Management, and Citadel Investment Group 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 Luminus Management allocated the biggest weight to PPG Industries, Inc. (NYSE:PPG), around 1.09% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 1.07 percent of its 13F equity portfolio to PPG.

As aggregate interest increased, key hedge funds have jumped into PPG Industries, Inc. (NYSE:PPG) headfirst. Candlestick Capital Management, managed by Jack Woodruff, created the biggest position in PPG Industries, Inc. (NYSE:PPG). Candlestick Capital Management had $41.4 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $6.3 million position during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital), Alec Litowitz and Ross Laser's Magnetar Capital, and Phil Frohlich's Prescott Group Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as PPG Industries, Inc. (NYSE:PPG) but similarly valued. These stocks are Cintas Corporation (NASDAQ:CTAS), Sempra Energy (NYSE:SRE), CRH PLC (NYSE:CRH), SYSCO Corporation (NYSE:SYY), Pioneer Natural Resources Company (NYSE:PXD), Parker-Hannifin Corporation (NYSE:PH), and O'Reilly Automotive Inc (NASDAQ:ORLY). This group of stocks' market caps resemble PPG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTAS,21,539216,-11 SRE,28,343994,1 CRH,9,90599,0 SYY,40,2600524,-2 PXD,45,876323,8 PH,42,1446066,-1 ORLY,44,2366019,-1 Average,32.7,1180392,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $1180 million. That figure was $234 million in PPG's case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 9 bullish hedge fund positions. PPG Industries, Inc. (NYSE:PPG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PPG is 44.9. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately PPG wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PPG investors were disappointed as the stock returned -5.2% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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