Hedge Funds Have Never Been This Bullish On Anixter International Inc. (AXE)

Abigail Fisher

Sat, Mar 28, 2020, 6:53 PM 6 min read

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Anixter International Inc. (NYSE:AXE) in this article.

Is Anixter International Inc. (NYSE:AXE) a sound investment now? The smart money is betting on the stock. The number of long hedge fund bets increased by 23 lately. Our calculations also showed that AXE isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). AXE was in 43 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with AXE holdings at the end of the previous quarter.

To the average investor there are several metrics market participants employ to grade publicly traded companies. A couple of the most underrated metrics are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the best money managers can beat their index-focused peers by a healthy amount (see the details here).

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Matthew Halbower of Pentwater Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a glance at the latest hedge fund action encompassing Anixter International Inc. (NYSE:AXE).

How have hedgies been trading Anixter International Inc. (NYSE:AXE)?

At Q4's end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 115% from the third quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in AXE a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Anixter International Inc. (NYSE:AXE) was held by Alpine Associates, which reported holding $89.6 million worth of stock at the end of September. It was followed by Farallon Capital with a $84.5 million position. Other investors bullish on the company included Carlson Capital, Water Island Capital, and Pentwater Capital Management. In terms of the portfolio weights assigned to each position LFL Advisers allocated the biggest weight to Anixter International Inc. (NYSE:AXE), around 7.99% of its 13F portfolio. Water Island Capital is also relatively very bullish on the stock, earmarking 5.09 percent of its 13F equity portfolio to AXE.

As aggregate interest increased, specific money managers have jumped into Anixter International Inc. (NYSE:AXE) headfirst. Alpine Associates, managed by Robert Emil Zoellner, established the most valuable position in Anixter International Inc. (NYSE:AXE). Alpine Associates had $89.6 million invested in the company at the end of the quarter. Farallon Capital also initiated a $84.5 million position during the quarter. The other funds with brand new AXE positions are Clint Carlson's Carlson Capital, John Orrico's Water Island Capital, and Matthew Halbower's Pentwater Capital Management.

Let's go over hedge fund activity in other stocks similar to Anixter International Inc. (NYSE:AXE). We will take a look at Old National Bancorp (NASDAQ:ONB), Novanta Inc. (NASDAQ:NOVT), TC Pipelines, LP (NYSE:TCP), and Hamilton Lane Incorporated (NASDAQ:HLNE). This group of stocks' market valuations are closest to AXE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ONB,14,37866,3 NOVT,14,88192,2 TCP,3,26792,-2 HLNE,10,77859,-5 Average,10.25,57677,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $616 million in AXE's case. Old National Bancorp (NASDAQ:ONB) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Anixter International Inc. (NYSE:AXE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on AXE as the stock returned -2.3% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.