How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Avnet, Inc. (NASDAQ:AVT) and determine whether hedge funds had an edge regarding this stock.
Is Avnet, Inc. (NASDAQ:AVT) a cheap investment right now? The best stock pickers were buying. The number of bullish hedge fund positions increased by 5 recently. Avnet, Inc. (NASDAQ:AVT) was in 29 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. Our calculations also showed that AVT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind we’re going to take a look at the new hedge fund action regarding Avnet, Inc. (NASDAQ:AVT).
What have hedge funds been doing with Avnet, Inc. (NASDAQ:AVT)?
At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AVT over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Avnet, Inc. (NASDAQ:AVT), which was worth $287.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $70 million worth of shares. Arrowstreet Capital, D E Shaw, and Diamond Hill 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 Cerebellum Capital allocated the biggest weight to Avnet, Inc. (NASDAQ:AVT), around 2.47% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, setting aside 1.87 percent of its 13F equity portfolio to AVT.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Royce & Associates, managed by Chuck Royce, assembled the most outsized position in Avnet, Inc. (NASDAQ:AVT). Royce & Associates had $11.7 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also made a $4.5 million investment in the stock during the quarter. The other funds with brand new AVT positions are David Andre and Astro Teller’s Cerebellum Capital, Lee Ainslie’s Maverick Capital, and Parvinder Thiara’s Athanor Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Avnet, Inc. (NASDAQ:AVT) but similarly valued. We will take a look at Burning Rock Biotech Limited (NASDAQ:BNR), H&R Block, Inc. (NYSE:HRB), Cushman & Wakefield plc (NYSE:CWK), LivePerson, Inc. (NASDAQ:LPSN), Echostar Corporation (NASDAQ:SATS), WNS (Holdings) Limited (NYSE:WNS), and El Paso Electric Company (NYSE:EE). This group of stocks’ market valuations are closest to AVT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BNR | 18 | 240649 | 18 |
| HRB | 24 | 206807 | 5 |
| CWK | 17 | 101994 | 2 |
| LPSN | 23 | 220073 | 8 |
| SATS | 29 | 394762 | 5 |
| WNS | 20 | 230288 | 3 |
| EE | 15 | 248090 | -8 |
| Average | 20.9 | 234666 | 4.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $554 million in AVT’s case. Echostar Corporation (NASDAQ:SATS) is the most popular stock in this table. On the other hand El Paso Electric Company (NYSE:EE) is the least popular one with only 15 bullish hedge fund positions. Avnet, Inc. (NASDAQ:AVT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AVT is 86.4. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately AVT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AVT were disappointed as the stock returned 0.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Avnet Inc (NYSE:AVT)
Follow Avnet Inc (NYSE:AVT)
Disclosure: None. This article was originally published at Insider Monkey.
