Was The Smart Money Right About Broadcom Inc (AVGO)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 887 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2020. In this article we are going to take a look at smart money sentiment towards Broadcom Inc (NASDAQ:AVGO).

Broadcom Inc (NASDAQ:AVGO) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 59 hedge funds’ portfolios at the end of the fourth quarter of 2020. Our calculations also showed that AVGO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare AVGO to other stocks including Exxon Mobil Corporation (NYSE:XOM), Accenture Plc (NYSE:ACN), and QUALCOMM, Incorporated (NASDAQ:QCOM) to get a better sense of its popularity.

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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Charles Clough of Clough Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to take a glance at the latest hedge fund action regarding Broadcom Inc (NASDAQ:AVGO).

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

At fourth quarter’s end, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2020. By comparison, 61 hedge funds held shares or bullish call options in AVGO a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

More specifically, Cantillon Capital Management was the largest shareholder of Broadcom Inc (NASDAQ:AVGO), with a stake worth $505.7 million reported as of the end of December. Trailing Cantillon Capital Management was Citadel Investment Group, which amassed a stake valued at $424 million. First Pacific Advisors LLC, Lyrical Asset Management, and Farallon 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 First Pacific Advisors LLC allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 5.43% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, setting aside 5.08 percent of its 13F equity portfolio to AVGO.

Judging by the fact that Broadcom Inc (NASDAQ:AVGO) has faced falling interest from hedge fund managers, it’s easy to see that there is a sect of hedgies that slashed their full holdings in the fourth quarter. It’s worth mentioning that  Renaissance Technologies said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $81.8 million in stock, and  Highbridge Capital Management was right behind this move, as the fund said goodbye to about $23.5 million worth. These transactions are intriguing to say the least, 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 – not necessarily in the same industry as Broadcom Inc (NASDAQ:AVGO) but similarly valued. These stocks are Exxon Mobil Corporation (NYSE:XOM), Accenture Plc (NYSE:ACN), QUALCOMM, Incorporated (NASDAQ:QCOM), T-Mobile US, Inc. (NYSE:TMUS), Costco Wholesale Corporation (NASDAQ:COST), BHP Group (NYSE:BHP), and Novo Nordisk A/S (NYSE:NVO). This group of stocks’ market values are similar to AVGO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.9 hedge funds with bullish positions and the average amount invested in these stocks was $3438 million. That figure was $3342 million in AVGO’s case. T-Mobile US, Inc. (NYSE:TMUS) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 20 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. Our overall hedge fund sentiment score for AVGO is 49.8. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately AVGO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AVGO were disappointed as the stock returned 5% since the end of December (through 4/30) 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 since 2019.

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

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