Did Hedge Funds Catch A Break With Avantor, Inc. (AVTR)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Avantor, Inc. (NYSE:AVTR) and determine whether hedge funds skillfully traded this stock.

Avantor, Inc. (NYSE:AVTR) was in 53 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 56. AVTR has experienced an increase in support from the world’s most elite money managers of late. There were 44 hedge funds in our database with AVTR positions at the end of the second quarter. Our calculations also showed that AVTR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a look at the key hedge fund action surrounding Avantor, Inc. (NYSE:AVTR).

Ricky Sandler of Eminence Capital

Do Hedge Funds Think AVTR Is A Good Stock To Buy Now?

At Q3’s end, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVTR over the last 25 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Third Point held the most valuable stake in Avantor, Inc. (NYSE:AVTR), which was worth $441.7 million at the end of the third quarter. On the second spot was Palestra Capital Management which amassed $319.3 million worth of shares. Viking Global, Farallon Capital, 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 Highline Capital Management allocated the biggest weight to Avantor, Inc. (NYSE:AVTR), around 11.02% of its 13F portfolio. Palestra Capital Management is also relatively very bullish on the stock, setting aside 6.78 percent of its 13F equity portfolio to AVTR.

As industrywide interest jumped, some big names were breaking ground themselves. Eminence Capital, managed by Ricky Sandler, initiated the most outsized position in Avantor, Inc. (NYSE:AVTR). Eminence Capital had $35.4 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also initiated a $11.7 million position during the quarter. The following funds were also among the new AVTR investors: Dmitry Balyasny’s Balyasny Asset Management, Jay Genzer’s Thames Capital Management, and William Hyatt’s Hudson Way Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Avantor, Inc. (NYSE:AVTR) but similarly valued. These stocks are Ryanair Holdings plc (NASDAQ:RYAAY), Franco-Nevada Corporation (NYSE:FNV), AmerisourceBergen Corporation (NYSE:ABC), Cheniere Energy, Inc. (NYSE:LNG), Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), Expedia Group Inc (NASDAQ:EXPE), and Sirius XM Holdings Inc (NASDAQ:SIRI). All of these stocks’ market caps resemble AVTR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.7 hedge funds with bullish positions and the average amount invested in these stocks was $2456 million. That figure was $2440 million in AVTR’s case. Expedia Group Inc (NASDAQ:EXPE) is the most popular stock in this table. On the other hand Ryanair Holdings plc (NASDAQ:RYAAY) is the least popular one with only 15 bullish hedge fund positions. Avantor, Inc. (NYSE:AVTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AVTR is 68.6. 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 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, AVTR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AVTR were disappointed as the stock returned -8.7% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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