In this article we are going to use hedge fund sentiment as a tool and determine whether Alarm.com Holdings Inc (NASDAQ:ALRM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Alarm.com Holdings Inc (NASDAQ:ALRM) investors should be aware of an increase in activity from the world’s largest hedge funds of late. Alarm.com Holdings Inc (NASDAQ:ALRM) was in 22 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 28. Our calculations also showed that ALRM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Charles Akre of Akre Capital Management
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. With all of this in mind we’re going to take a glance at the key hedge fund action encompassing Alarm.com Holdings Inc (NASDAQ:ALRM).
Do Hedge Funds Think ALRM Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the first quarter of 2020. By comparison, 24 hedge funds held shares or bullish call options in ALRM a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Akre Capital Management was the largest shareholder of Alarm.com Holdings Inc (NASDAQ:ALRM), with a stake worth $167.6 million reported as of the end of June. Trailing Akre Capital Management was Bares Capital Management, which amassed a stake valued at $30 million. Montanaro Asset Management, Motley Fool Asset Management, and Arrowstreet Capital 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 Montanaro Asset Management allocated the biggest weight to Alarm.com Holdings Inc (NASDAQ:ALRM), around 2.91% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, dishing out 1.31 percent of its 13F equity portfolio to ALRM.
With a general bullishness amongst the heavyweights, key money managers have jumped into Alarm.com Holdings Inc (NASDAQ:ALRM) headfirst. ExodusPoint Capital, managed by Michael Gelband, established the most outsized position in Alarm.com Holdings Inc (NASDAQ:ALRM). ExodusPoint Capital had $0.9 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.8 million position during the quarter. The only other fund with a new position in the stock is Qing Li’s Sciencast Management.
Let’s now take a look at hedge fund activity in other stocks similar to Alarm.com Holdings Inc (NASDAQ:ALRM). We will take a look at Altra Industrial Motion Corp. (NASDAQ:AIMC), Matador Resources Co (NYSE:MTDR), APi Group Corporation (NYSE:APG), Hudson Pacific Properties Inc (NYSE:HPP), Sanderson Farms, Inc. (NASDAQ:SAFM), PNM Resources, Inc. (NYSE:PNM), and Range Resources Corp. (NYSE:RRC). This group of stocks’ market caps are similar to ALRM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIMC | 6 | 9536 | -12 |
| MTDR | 18 | 301146 | 4 |
| APG | 34 | 1221074 | 1 |
| HPP | 18 | 127645 | 2 |
| SAFM | 33 | 298730 | 15 |
| PNM | 27 | 715188 | 1 |
| RRC | 25 | 493861 | -1 |
| Average | 23 | 452454 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $452 million. That figure was $326 million in ALRM’s case. APi Group Corporation (NYSE:APG) is the most popular stock in this table. On the other hand Altra Industrial Motion Corp. (NASDAQ:AIMC) is the least popular one with only 6 bullish hedge fund positions. Alarm.com Holdings Inc (NASDAQ:ALRM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALRM is 59.1. 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 negative signal and 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 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately ALRM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ALRM investors were disappointed as the stock returned -4.3% since the end of June (through 10/22) 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 most of these stocks already outperformed the market in 2021.
Follow Alarm.com Holdings Inc. (NASDAQ:ALRM)
Follow Alarm.com Holdings Inc. (NASDAQ:ALRM)
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Disclosure: None. This article was originally published at Insider Monkey.
