Were Hedge Funds Right About Dumping Hexcel Corporation (HXL)?
How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Hexcel Corporation (NYSE:HXL).
Hexcel Corporation (NYSE:HXL) has seen a decrease in activity from the world's largest hedge funds in recent months. Hexcel Corporation (NYSE:HXL) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 30. Our calculations also showed that HXL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
According to most shareholders, hedge funds are seen as unimportant, old investment tools of years past. While there are over 8000 funds in operation at the moment, Our researchers hone in on the top tier of this club, around 850 funds. Most estimates calculate that this group of people preside over most of the smart money's total capital, and by monitoring their finest picks, Insider Monkey has formulated a few investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Boykin Curry of Eagle Capital
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Do Hedge Funds Think HXL Is A Good Stock To Buy Now?
At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in HXL a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Hexcel Corporation (NYSE:HXL), which was worth $21.9 million at the end of the fourth quarter. On the second spot was Two Sigma Advisors which amassed $21.9 million worth of shares. MFP Investors, Markel Gayner Asset Management, and Millennium Management 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 MFP Investors allocated the biggest weight to Hexcel Corporation (NYSE:HXL), around 1.33% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 0.22 percent of its 13F equity portfolio to HXL.
Seeing as Hexcel Corporation (NYSE:HXL) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few money managers that decided to sell off their full holdings heading into Q2. At the top of the heap, Boykin Curry's Eagle Capital Management sold off the largest position of all the hedgies monitored by Insider Monkey, comprising about $40.7 million in stock. Michael Cowley's fund, Sandbar Asset Management, also said goodbye to its stock, about $11.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds heading into Q2.
Let's go over hedge fund activity in other stocks similar to Hexcel Corporation (NYSE:HXL). We will take a look at UFP Industries, Inc. (NASDAQ:UFPI), Perspecta Inc. (NYSE:PRSP), Hamilton Lane Incorporated (NASDAQ:HLNE), FireEye Inc (NASDAQ:FEYE), Altair Engineering Inc. (NASDAQ:ALTR), New Residential Investment Corp (NYSE:NRZ), and Novanta Inc. (NASDAQ:NOVT). All of these stocks' market caps match HXL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UFPI,16,171550,-3 PRSP,40,957808,3 HLNE,16,78897,2 FEYE,25,181632,-6 ALTR,18,581401,2 NRZ,15,84760,-7 NOVT,16,94857,-2 Average,20.9,307272,-1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $307 million. That figure was $98 million in HXL's case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand New Residential Investment Corp (NYSE:NRZ) is the least popular one with only 15 bullish hedge fund positions. Hexcel Corporation (NYSE:HXL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HXL is 22. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately HXL wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HXL investors were disappointed as the stock returned 3.1% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 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.
