Is ARW Stock A Buy or Sell?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Arrow Electronics, Inc. (NYSE:ARW).

Is ARW stock a buy? Arrow Electronics, Inc. (NYSE:ARW) was in 27 hedge funds’ portfolios at the end of December. The all time high for this statistic is 34. ARW investors should be aware of a decrease in enthusiasm from smart money recently. There were 28 hedge funds in our database with ARW positions at the end of the third quarter. Our calculations also showed that ARW isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Ian Wace of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 go over the recent hedge fund action surrounding Arrow Electronics, Inc. (NYSE:ARW).

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

At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in ARW over the last 22 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Arrow Electronics, Inc. (NYSE:ARW), with a stake worth $295.1 million reported as of the end of December. Trailing AQR Capital Management was Lyrical Asset Management, which amassed a stake valued at $166.5 million. Arrowstreet Capital, Polaris Capital Management, and Woodline Partners 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 Force Hill Capital Management allocated the biggest weight to Arrow Electronics, Inc. (NYSE:ARW), around 2.94% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, earmarking 2.3 percent of its 13F equity portfolio to ARW.

Since Arrow Electronics, Inc. (NYSE:ARW) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that elected to cut their entire stakes by the end of the fourth quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $0.6 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also cut its stock, about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds by the end of the fourth quarter.

Let’s now review hedge fund activity in other stocks similar to Arrow Electronics, Inc. (NYSE:ARW). These stocks are Allakos Inc. (NASDAQ:ALLK), argenx SE (NASDAQ:ARGX), UGI Corp (NYSE:UGI), Under Armour Inc (NYSE:UA), Pan American Silver Corp. (NASDAQ:PAAS), Signature Bank (NASDAQ:SBNY), and East West Bancorp, Inc. (NASDAQ:EWBC). All of these stocks’ market caps are similar to ARW’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $714 million. That figure was $764 million in ARW’s case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 11 bullish hedge fund positions. Arrow Electronics, Inc. (NYSE:ARW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARW is 50. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on ARW as the stock returned 21.1% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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