Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Arista Networks Inc (NYSE:ANET).
Is Arista Networks Inc (NYSE:ANET) ready to rally soon? The best stock pickers are becoming more confident. The number of long hedge fund bets went up by 2 lately. ANET was in 22 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with ANET positions at the end of the previous quarter. At the end of this article we will also compare ANET to other stocks including Columbia Sportswear Company (NASDAQ:COLM), Diamondback Energy Inc (NASDAQ:FANG), and Teradata Corporation (NYSE:TDC) to get a better sense of its popularity.
Follow Arista Networks Inc. (NYSE:ANET)
Follow Arista Networks Inc. (NYSE:ANET)
Keeping this in mind, let’s review the fresh action regarding Arista Networks Inc (NYSE:ANET).
How are hedge funds trading Arista Networks Inc (NYSE:ANET)?
Heading into Q4, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Lone Pine Capital, managed by Stephen Mandel, holds the most valuable position in Arista Networks Inc (NYSE:ANET). Lone Pine Capital has a $133.1 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Tiger Global Management LLC, managed by Chase Coleman, which holds a $24.5 million position; 0.3% of its 13F portfolio is allocated to the stock. Other peers that hold long positions contain Brian Ashford-Russell and Tim Woolley’s Polar Capital, Robert B. Gillam’s McKinley Capital Management and Leon Shaulov’s Maplelane Capital.
Now, key money managers were breaking ground themselves. Tiger Global Management LLC, managed by Chase Coleman, assembled the most outsized position in Arista Networks Inc (NYSE:ANET). Tiger Global Management LLC had $24.5 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $4.7 million investment in the stock during the quarter. The other funds with brand new ANET positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Jim Simons’s Renaissance Technologies, and Joel Greenblatt’s Gotham Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Arista Networks Inc (NYSE:ANET). We will take a look at Columbia Sportswear Company (NASDAQ:COLM), Diamondback Energy Inc (NASDAQ:FANG), Teradata Corporation (NYSE:TDC), and Weingarten Realty Investors (NYSE:WRI). All of these stocks’ market caps are similar to ANET’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COLM | 19 | 141806 | 4 |
| FANG | 38 | 641988 | -8 |
| TDC | 22 | 863642 | -8 |
| WRI | 13 | 58023 | 2 |
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 $426 million. That figure was $236 million in ANET’s case. Diamondback Energy Inc (NASDAQ:FANG) is the most popular stock in this table. On the other hand Weingarten Realty Investors (NYSE:WRI) is the least popular one with only 13 bullish hedge fund positions. Arista Networks Inc (NYSE:ANET) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FANG might be a better candidate to consider a long position.
