Is AROC A Good Stock To Buy Now?

After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Archrock, Inc. (NYSE:AROC).

Is AROC a good stock to buy now? Archrock, Inc. (NYSE:AROC) was in 10 hedge funds’ portfolios at the end of September. The all time high for this statistics is 26. AROC has experienced a decrease in activity from the world’s largest hedge funds in recent months. There were 12 hedge funds in our database with AROC positions at the end of the second quarter. Our calculations also showed that AROC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most market participants, hedge funds are viewed as unimportant, old investment tools of years past. While there are more than 8000 funds with their doors open today, Our experts hone in on the masters of this group, approximately 850 funds. It is estimated that this group of investors handle bulk of all hedge funds’ total capital, and by tracking their finest picks, Insider Monkey has discovered several investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind let’s review the fresh hedge fund action surrounding Archrock, Inc. (NYSE:AROC).

Do Hedge Funds Think AROC Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AROC over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Archrock, Inc. (NYSE:AROC) was held by Royce & Associates, which reported holding $5.2 million worth of stock at the end of September. It was followed by Millennium Management with a $3.8 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Archrock, Inc. (NYSE:AROC), around 0.06% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to AROC.

Due to the fact that Archrock, Inc. (NYSE:AROC) has faced declining sentiment from hedge fund managers, we can see that there were a few money managers that slashed their entire stakes by the end of the third quarter. It’s worth mentioning that Stephen C. Freidheim’s Cyrus Capital Partners sold off the largest stake of all the hedgies tracked by Insider Monkey, worth an estimated $1.4 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund sold off about $0.5 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Archrock, Inc. (NYSE:AROC) but similarly valued. These stocks are Delek US Holdings, Inc. (NYSE:DK), Mobileiron Inc (NASDAQ:MOBL), BellRing Brands, Inc. (NYSE:BRBR), Dillard’s, Inc. (NYSE:DDS), Green Brick Partners Inc (NASDAQ:GRBK), United Natural Foods, Inc. (NYSE:UNFI), and Boot Barn Holdings Inc (NYSE:BOOT). All of these stocks’ market caps are closest to AROC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $19 million in AROC’s case. Mobileiron Inc (NASDAQ:MOBL) is the most popular stock in this table. On the other hand BellRing Brands, Inc. (NYSE:BRBR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Archrock, Inc. (NYSE:AROC) is even less popular than BRBR. Our overall hedge fund sentiment score for AROC is 14.5. 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. Hedge funds clearly dropped the ball on AROC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on AROC as the stock returned 71.3% since Q3 (through December 8th) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.