We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Avalara, Inc. (NYSE:AVLR) a sound investment right now? The best stock pickers are becoming hopeful. The number of long hedge fund positions improved by 4 recently. Our calculations also showed that AVLR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). AVLR was in 44 hedge funds’ portfolios at the end of September. There were 40 hedge funds in our database with AVLR holdings at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Michael Stark of Crosslink Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding Avalara, Inc. (NYSE:AVLR).
What have hedge funds been doing with Avalara, Inc. (NYSE:AVLR)?
Heading into the fourth quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVLR over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Alkeon Capital Management was the largest shareholder of Avalara, Inc. (NYSE:AVLR), with a stake worth $223.1 million reported as of the end of September. Trailing Alkeon Capital Management was Whale Rock Capital Management, which amassed a stake valued at $197.3 million. Renaissance Technologies, Tensile Capital, and D E Shaw 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 Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 10.38% of its 13F portfolio. Calixto Global Investors is also relatively very bullish on the stock, earmarking 7.28 percent of its 13F equity portfolio to AVLR.
Consequently, some big names were leading the bulls’ herd. Maplelane Capital, managed by Leon Shaulov, created the largest call position in Avalara, Inc. (NYSE:AVLR). Maplelane Capital had $22.5 million invested in the company at the end of the quarter. Eduardo Costa’s Calixto Global Investors also initiated a $9.4 million position during the quarter. The following funds were also among the new AVLR investors: Peter Muller’s PDT Partners, Seth Wunder’s Black-and-White Capital, and Seymour Sy Kaufman and Michael Stark’s Crosslink Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Avalara, Inc. (NYSE:AVLR) but similarly valued. We will take a look at Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), bluebird bio Inc (NASDAQ:BLUE), ONE Gas Inc (NYSE:OGS), and Globus Medical Inc (NYSE:GMED). This group of stocks’ market values are closest to AVLR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TKC | 5 | 5614 | -2 |
| BLUE | 16 | 146471 | -6 |
| OGS | 17 | 95793 | 3 |
| GMED | 21 | 258701 | 2 |
| Average | 14.75 | 126645 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $1103 million in AVLR’s case. Globus Medical Inc (NYSE:GMED) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Avalara, Inc. (NYSE:AVLR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AVLR as the stock returned 133.3% so far in 2019 (through 12/23) 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.
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.
