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Was Smart Money Right About General Dynamics Corporation (GD)?

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Reymerlyn Martin
·6 min read
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Keeping this in mind, let's analyze whether General Dynamics Corporation (NYSE:GD) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

General Dynamics Corporation (NYSE:GD) was in 42 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 51. GD investors should pay attention to an increase in hedge fund interest lately. There were 39 hedge funds in our database with GD holdings at the end of March. Our calculations also showed that GD isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are perceived as slow, outdated investment vehicles of the past. While there are over 8000 funds trading at the moment, Our experts hone in on the top tier of this club, about 850 funds. These investment experts oversee bulk of the hedge fund industry's total capital, and by tracking their top picks, Insider Monkey has formulated various investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a peek at the recent hedge fund action encompassing General Dynamics Corporation (NYSE:GD).

What have hedge funds been doing with General Dynamics Corporation (NYSE:GD)?

At Q2's end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in GD over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in General Dynamics Corporation (NYSE:GD) was held by Longview Asset Management, which reported holding $4814.5 million worth of stock at the end of September. It was followed by Farallon Capital with a $172.1 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Longview Asset Management allocated the biggest weight to General Dynamics Corporation (NYSE:GD), around 96.77% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, dishing out 14.63 percent of its 13F equity portfolio to GD.

As one would reasonably expect, some big names have been driving this bullishness. Abrams Bison Investments, managed by Gavin M. Abrams, created the most valuable position in General Dynamics Corporation (NYSE:GD). Abrams Bison Investments had $49 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $40.2 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Anna Nikolayevsky's Axel Capital Management, and Frank Brosens's Taconic Capital.

Let's check out 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 Vodafone Group Plc (NASDAQ:VOD), National Grid plc (NYSE:NGG), Ferrari N.V. (NYSE:RACE), Koninklijke Philips NV (NYSE:PHG), Ambev SA (NYSE:ABEV), UBS Group AG (NYSE:UBS), and Baidu, Inc. (NASDAQ:BIDU). All of these stocks' market caps are closest to GD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VOD,16,726090,2 NGG,2,430749,-4 RACE,25,1361698,-4 PHG,6,83694,-5 ABEV,13,517659,4 UBS,16,302408,1 BIDU,49,2993009,0 Average,18.1,916472,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $916 million. That figure was $5492 million in GD's case. Baidu, Inc. (NASDAQ:BIDU) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 2 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. Our overall hedge fund sentiment score for GD is 75.3. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately GD wasn't nearly as popular as these 10 stocks and hedge funds that were betting on GD were disappointed as the stock returned -4.4% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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