The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Astec Industries, Inc. (NASDAQ:ASTE), and what that likely means for the prospects of the company and its stock.
Astec Industries, Inc. (NASDAQ:ASTE) shareholders have witnessed an increase in hedge fund sentiment of late. Our calculations also showed that ASTE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the fresh hedge fund action encompassing Astec Industries, Inc. (NASDAQ:ASTE).
How have hedgies been trading Astec Industries, Inc. (NASDAQ:ASTE)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ASTE over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Astec Industries, Inc. (NASDAQ:ASTE) was held by GAMCO Investors, which reported holding $39 million worth of stock at the end of September. It was followed by Adage Capital Management with a $24 million position. Other investors bullish on the company included Royce & Associates, D E Shaw, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Harvey Partners allocated the biggest weight to Astec Industries, Inc. (NASDAQ:ASTE), around 1.12% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 0.33 percent of its 13F equity portfolio to ASTE.
As aggregate interest increased, key money managers have jumped into Astec Industries, Inc. (NASDAQ:ASTE) headfirst. Harvey Partners, managed by Jeffrey Moskowitz, initiated the biggest position in Astec Industries, Inc. (NASDAQ:ASTE). Harvey Partners had $1.6 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also made a $0.9 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer's PEAK6 Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Astec Industries, Inc. (NASDAQ:ASTE) but similarly valued. We will take a look at Emerald Expositions Events, Inc. (NYSE:EEX), United Financial Bancorp, Inc. (NASDAQ:UBNK), Axsome Therapeutics, Inc. (NASDAQ:AXSM), and NextDecade Corporation (NASDAQ:NEXT). This group of stocks' market valuations resemble ASTE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EEX,14,12181,7 UBNK,14,86797,5 AXSM,15,76029,-1 NEXT,7,510135,-2 Average,12.5,171286,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $84 million in ASTE's case. Axsome Therapeutics, Inc. (NASDAQ:AXSM) is the most popular stock in this table. On the other hand NextDecade Corporation (NASDAQ:NEXT) is the least popular one with only 7 bullish hedge fund positions. Astec Industries, Inc. (NASDAQ:ASTE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ASTE as the stock returned 20.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.