In this article we will take a look at whether hedge funds think Avantor, Inc. (NYSE:AVTR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Avantor, Inc. (NYSE:AVTR) a great investment right now? Prominent investors were getting less bullish. The number of long hedge fund positions decreased by 4 in recent months. Avantor, Inc. (NYSE:AVTR) was in 44 hedge funds’ portfolios at the end of June. The all time high for this statistic is 56. Our calculations also showed that AVTR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 48 hedge funds in our database with AVTR holdings at the end of March.
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’ 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 S&P 500 ETFs by 79 percentage points since March 2017 (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.
Robert Pohly of Samlyn Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a peek at the fresh hedge fund action surrounding Avantor, Inc. (NYSE:AVTR).
Do Hedge Funds Think AVTR Is A Good Stock To Buy Now?
At the end of June, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2020. By comparison, 34 hedge funds held shares or bullish call options in AVTR 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 Avantor, Inc. (NYSE:AVTR) was held by Viking Global, which reported holding $416.6 million worth of stock at the end of June. It was followed by Third Point with a $372.9 million position. Other investors bullish on the company included Palestra Capital Management, Iridian Asset Management, and Polar Capital. In terms of the portfolio weights assigned to each position Highline Capital Management allocated the biggest weight to Avantor, Inc. (NYSE:AVTR), around 9.46% of its 13F portfolio. Palestra Capital Management is also relatively very bullish on the stock, setting aside 7.18 percent of its 13F equity portfolio to AVTR.
Since Avantor, Inc. (NYSE:AVTR) has witnessed bearish sentiment from the smart money, it’s safe to say that there is a sect of money managers who were dropping their full holdings in the second quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest position of the 750 funds tracked by Insider Monkey, valued at an estimated $50.7 million in stock, and Joseph Samuels’s Islet Management was right behind this move, as the fund said goodbye to about $23.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds in the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Avantor, Inc. (NYSE:AVTR) but similarly valued. We will take a look at Halliburton Company (NYSE:HAL), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Steris Plc (NYSE:STE), Trimble Inc. (NASDAQ:TRMB), Ingersoll Rand Inc. (NYSE:IR), Ameren Corporation (NYSE:AEE), and Fox Corporation (NASDAQ:FOX). This group of stocks’ market values are similar to AVTR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HAL | 29 | 1336150 | 1 |
| TTWO | 55 | 1313646 | 14 |
| STE | 35 | 1783774 | 5 |
| TRMB | 27 | 1799575 | 4 |
| IR | 31 | 873484 | -4 |
| AEE | 23 | 212535 | 4 |
| FOX | 25 | 590317 | 0 |
| Average | 32.1 | 1129926 | 3.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.1 hedge funds with bullish positions and the average amount invested in these stocks was $1130 million. That figure was $2178 million in AVTR’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Ameren Corporation (NYSE:AEE) is the least popular one with only 23 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 57.4. 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. 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on AVTR as the stock returned 17% since the end of Q2 (through 10/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Avantor Inc. (NYSE:AVTR)
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Disclosure: None. This article was originally published at Insider Monkey.
