Was The Smart Money Right About Piling Into Avantor, Inc. (AVTR)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Avantor, Inc. (NYSE:AVTR).

Avantor, Inc. (NYSE:AVTR) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 56 hedge funds’ portfolios at the end of December. Our calculations also showed that AVTR 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 AVTR to other stocks including Healthpeak Properties, Inc. (NYSE:PEAK), Hess Corporation (NYSE:HES), and Ulta Beauty, Inc. (NASDAQ:ULTA) 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.

Andreas Halvorsen of Viking Global

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. Keeping this in mind let’s view the recent hedge fund action regarding Avantor, Inc. (NYSE:AVTR).

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

At Q4’s end, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in AVTR a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Avantor, Inc. (NYSE:AVTR) was held by Viking Global, which reported holding $376 million worth of stock at the end of December. It was followed by Third Point with a $309.7 million position. Other investors bullish on the company included Palestra Capital Management, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Highside Global Management allocated the biggest weight to Avantor, Inc. (NYSE:AVTR), around 6.65% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to AVTR.

Judging by the fact that Avantor, Inc. (NYSE:AVTR) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their positions entirely heading into Q1. At the top of the heap, Doug Silverman and Alexander Klabin’s Senator Investment Group dropped the largest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $13.2 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also said goodbye to its stock, about $12.1 million worth. These bearish behaviors are important to note, as aggregate 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 Avantor, Inc. (NYSE:AVTR). We will take a look at Healthpeak Properties, Inc. (NYSE:PEAK), Hess Corporation (NYSE:HES), Ulta Beauty, Inc. (NASDAQ:ULTA), Steris Plc (NYSE:STE), Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), Occidental Petroleum Corporation (NYSE:OXY), and Expeditors International of Washington, Inc. (NASDAQ:EXPD). This group of stocks’ market caps match AVTR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.6 hedge funds with bullish positions and the average amount invested in these stocks was $1311 million. That figure was $2219 million in AVTR’s case. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) is the most popular stock in this table. On the other hand Healthpeak Properties, Inc. (NYSE:PEAK) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Avantor, Inc. (NYSE:AVTR) is more popular among hedge funds. Our overall hedge fund sentiment score for AVTR is 85. 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 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 returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on AVTR as the stock returned 13.8% since the end of December (through 4/30) 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.

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