World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Is American Express Company (NYSE:AXP) a worthy investment right now? Investors who are in the know are getting less optimistic. The number of long hedge fund bets went down by 12 in recent months. Overall hedge fund sentiment towards the stock is at its all time low. Our calculations also showed that AXP isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).
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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the key hedge fund action encompassing American Express Company (NYSE:AXP).
What does smart money think about American Express Company (NYSE:AXP)?
At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AXP over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American Express Company (NYSE:AXP) was held by Berkshire Hathaway, which reported holding $18714.8 million worth of stock at the end of March. It was followed by Fisher Asset Management with a $1401.4 million position. Other investors bullish on the company included Egerton Capital Limited, GAMCO Investors, and Theleme Partners.
Because American Express Company (NYSE:AXP) has faced a decline in interest from the smart money, it's easy to see that there were a few fund managers who sold off their full holdings in the second quarter. At the top of the heap, Dan Loeb's Third Point said goodbye to the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $164 million in stock, and Jim Simons's Renaissance Technologies was right behind this move, as the fund said goodbye to about $36 million worth. These moves are interesting, as total hedge fund interest fell by 12 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to American Express Company (NYSE:AXP). These stocks are Lockheed Martin Corporation (NYSE:LMT), Starbucks Corporation (NASDAQ:SBUX), Danaher Corporation (NYSE:DHR), and Diageo plc (NYSE:DEO). This group of stocks' market valuations are similar to AXP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LMT,48,1348962,13 SBUX,49,5242004,2 DHR,58,2775439,0 DEO,15,847063,-1 Average,42.5,2553367,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.5 hedge funds with bullish positions and the average amount invested in these stocks was $2553 million. That figure was $22025 million in AXP's case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 15 bullish hedge fund positions. American Express Company (NYSE:AXP) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AXP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AXP were disappointed as the stock returned -3.9% during the third quarter 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 many of these stocks already outperformed the market so far this year. 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.