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Is AAON, Inc. (NASDAQ:AAON) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is AAON a good stock to buy now? The smart money was betting on the stock. The number of bullish hedge fund bets moved up by 1 in recent months. AAON, Inc. (NASDAQ:AAON) was in 16 hedge funds' portfolios at the end of September. The all time high for this statistic is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AAON 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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 let's review the fresh hedge fund action surrounding AAON, Inc. (NASDAQ:AAON).
Do Hedge Funds Think AAON Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in AAON a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of AAON, Inc. (NASDAQ:AAON), with a stake worth $21.7 million reported as of the end of September. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $8.1 million. Renaissance Technologies, Citadel Investment Group, and PEAK6 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 Quantinno Capital allocated the biggest weight to AAON, Inc. (NASDAQ:AAON), around 0.24% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to AAON.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in AAON, Inc. (NASDAQ:AAON). Balyasny Asset Management had $1.1 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also initiated a $0.9 million position during the quarter. The only other fund with a brand new AAON position is Mika Toikka's AlphaCrest Capital Management.
Let's check out hedge fund activity in other stocks similar to AAON, Inc. (NASDAQ:AAON). We will take a look at Harmony Gold Mining Co. (NYSE:HMY), H&R Block, Inc. (NYSE:HRB), Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), First Citizens BancShares Inc. (NASDAQ:FCNCA), Perspecta Inc. (NYSE:PRSP), Rapid7 Inc (NASDAQ:RPD), and Synovus Financial Corp. (NYSE:SNV). This group of stocks' market valuations resemble AAON's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HMY,10,57330,0 HRB,24,342325,0 AJRD,26,462985,1 FCNCA,21,86819,6 PRSP,36,689066,-10 RPD,21,80832,7 SNV,25,122387,-2 Average,23.3,263106,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $52 million in AAON's case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand Harmony Gold Mining Co. (NYSE:HMY) is the least popular one with only 10 bullish hedge fund positions. AAON, Inc. (NASDAQ:AAON) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AAON is 47.5. 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 negative signal and 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately AAON wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AAON investors were disappointed as the stock returned 3.8% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.