Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Avaya Holdings Corp. (NYSE:AVYA) in this article.
Is AVYA a good stock to buy? Hedge fund interest in Avaya Holdings Corp. (NYSE:AVYA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AVYA 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). At the end of this article we will also compare AVYA to other stocks including The Cheesecake Factory Incorporated (NASDAQ:CAKE), Kadant Inc. (NYSE:KAI), and Trillium Therapeutics Inc. (NASDAQ:TRIL) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. With all of this in mind we’re going to view the recent hedge fund action regarding Avaya Holdings Corp. (NYSE:AVYA).
Do Hedge Funds Think AVYA Is A Good Stock To Buy Now?
At the end of September, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AVYA over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Melqart Asset Management was the largest shareholder of Avaya Holdings Corp. (NYSE:AVYA), with a stake worth $53.6 million reported as of the end of September. Trailing Melqart Asset Management was Point72 Asset Management, which amassed a stake valued at $40.2 million. Highland Capital Management, Arrowstreet Capital, and Rubric Capital Management 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 Alta Fundamental Advisers allocated the biggest weight to Avaya Holdings Corp. (NYSE:AVYA), around 21.43% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, designating 7.42 percent of its 13F equity portfolio to AVYA.
Seeing as Avaya Holdings Corp. (NYSE:AVYA) has faced a decline in interest from the smart money, we can see that there were a few hedgies that slashed their positions entirely in the third quarter. At the top of the heap, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $3.3 million in stock, and Michel Massoud’s Melqart Asset Management was right behind this move, as the fund sold off about $2.1 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Avaya Holdings Corp. (NYSE:AVYA). These stocks are The Cheesecake Factory Incorporated (NASDAQ:CAKE), Kadant Inc. (NYSE:KAI), Trillium Therapeutics Inc. (NASDAQ:TRIL), First Merchants Corporation (NASDAQ:FRME), Alexander’s, Inc. (NYSE:ALX), Seabridge Gold, Inc. (NYSE:SA), and CBIZ, Inc. (NYSE:CBZ). All of these stocks’ market caps resemble AVYA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAKE | 25 | 151806 | 8 |
| KAI | 8 | 64381 | 3 |
| TRIL | 32 | 464628 | 7 |
| FRME | 15 | 65819 | 4 |
| ALX | 10 | 99516 | 2 |
| SA | 10 | 68702 | 2 |
| CBZ | 14 | 182425 | 0 |
| Average | 16.3 | 156754 | 3.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $359 million in AVYA’s case. Trillium Therapeutics Inc. (NASDAQ:TRIL) is the most popular stock in this table. On the other hand Kadant Inc. (NYSE:KAI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Avaya Holdings Corp. (NYSE:AVYA) is more popular among hedge funds. Our overall hedge fund sentiment score for AVYA is 79.3. 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 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 returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on AVYA as the stock returned 28% since the end of September (through 12/18) 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.
Follow Avaya Holdings Corp. (NYSE:AVYA)
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Disclosure: None. This article was originally published at Insider Monkey.
