Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Broadcom Inc (NASDAQ:AVGO) makes for a good investment right now.
Is Broadcom Inc (NASDAQ:AVGO) a buy here? Hedge funds are buying. The number of bullish hedge fund positions moved up by 2 lately. Our calculations also showed that AVGO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
William Von Mueffling of Cantillon Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a gander at the latest hedge fund action regarding Broadcom Inc (NASDAQ:AVGO).
How are hedge funds trading Broadcom Inc (NASDAQ:AVGO)?
At the end of the foruth quarter, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AVGO over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Broadcom Inc (NASDAQ:AVGO) was held by First Pacific Advisors LLC, which reported holding $462.8 million worth of stock at the end of September. It was followed by Cantillon Capital Management with a $368 million position. Other investors bullish on the company included Lyrical Asset Management, Citadel Investment Group, and Coatue Management. In terms of the portfolio weights assigned to each position Crescent Park Management allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 7.57% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, designating 7.32 percent of its 13F equity portfolio to AVGO.
As aggregate interest increased, key money managers were leading the bulls’ herd. GQG Partners, managed by Rajiv Jain, created the most outsized position in Broadcom Inc (NASDAQ:AVGO). GQG Partners had $135.6 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also made a $34.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Howard Marks’s Oaktree Capital Management, David Tepper’s Appaloosa Management LP, and Qing Li’s Sciencast Management.
Let’s now review hedge fund activity in other stocks similar to Broadcom Inc (NASDAQ:AVGO). We will take a look at Union Pacific Corporation (NYSE:UNP), ASML Holding N.V. (NASDAQ:ASML), Texas Instruments Incorporated (NASDAQ:TXN), and BHP Billiton plc (NYSE:BBL). All of these stocks’ market caps resemble AVGO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UNP | 65 | 5313051 | -4 |
| ASML | 22 | 1133071 | 7 |
| TXN | 50 | 2386926 | -10 |
| BBL | 24 | 1238737 | 2 |
| Average | 40.25 | 2517946 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $2518 million. That figure was $2514 million in AVGO’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 22 bullish hedge fund positions. Broadcom Inc (NASDAQ:AVGO) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately AVGO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AVGO were disappointed as the stock returned -9.8% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
