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 Ambarella Inc (NASDAQ:AMBA) and determine whether hedge funds had an edge regarding this stock.
Ambarella Inc (NASDAQ:AMBA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds’ portfolios at the end of September. Our calculations also showed that AMBA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as MSA Safety Incorporated (NYSE:MSA), Hilton Grand Vacations Inc. (NYSE:HGV), and LG Display Co Ltd. (NYSE:LPL) to gather more data points.
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 check out the latest hedge fund action regarding Ambarella Inc (NASDAQ:AMBA).
Richard Driehaus of Driehaus Capital
Do Hedge Funds Think AMBA Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in AMBA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Ambarella Inc (NASDAQ:AMBA) was held by Driehaus Capital, which reported holding $89.9 million worth of stock at the end of September. It was followed by Holocene Advisors with a $65.5 million position. Other investors bullish on the company included Polar Capital, Newbrook Capital Advisors, and Maplelane Capital. In terms of the portfolio weights assigned to each position P.A.W. CAPITAL PARTNERS allocated the biggest weight to Ambarella Inc (NASDAQ:AMBA), around 4.85% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, designating 3.96 percent of its 13F equity portfolio to AMBA.
Due to the fact that Ambarella Inc (NASDAQ:AMBA) has experienced a decline in interest from hedge fund managers, we can see that there was a specific group of hedge funds who were dropping their entire stakes by the end of the third quarter. Intriguingly, Michael Rockefeller and KarláKroeker’s Woodline Partners sold off the biggest investment of the 750 funds followed by Insider Monkey, valued at an estimated $13 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $4.9 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Ambarella Inc (NASDAQ:AMBA). We will take a look at MSA Safety Incorporated (NYSE:MSA), Hilton Grand Vacations Inc. (NYSE:HGV), LG Display Co Ltd. (NYSE:LPL), Vir Biotechnology, Inc. (NASDAQ:VIR), Vontier Corporation (NYSE:VNT), The AZEK Company Inc. (NYSE:AZEK), and Watts Water Technologies Inc (NYSE:WTS). This group of stocks’ market caps are similar to AMBA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSA | 14 | 35354 | 1 |
| HGV | 30 | 1202003 | -4 |
| LPL | 9 | 23930 | 2 |
| VIR | 17 | 38096 | 6 |
| VNT | 31 | 805795 | -3 |
| AZEK | 38 | 427310 | 1 |
| WTS | 16 | 515456 | -2 |
| Average | 22.1 | 435421 | 0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $435 million. That figure was $583 million in AMBA’s case. The AZEK Company Inc. (NYSE:AZEK) is the most popular stock in this table. On the other hand LG Display Co Ltd. (NYSE:LPL) is the least popular one with only 9 bullish hedge fund positions. Ambarella Inc (NASDAQ:AMBA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMBA is 83.3. 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, AMBA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AMBA were disappointed as the stock returned -10% 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.
