Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Axon Enterprise, Inc. (NASDAQ:AAXN), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is AAXN a good stock to buy? Axon Enterprise, Inc. (NASDAQ:AAXN) has experienced a decrease in enthusiasm from smart money lately. Axon Enterprise, Inc. (NASDAQ:AAXN) was in 32 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 39. Our calculations also showed that AAXN 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.
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 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. 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.
Peter Algert of Algert Global
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let's check out the fresh hedge fund action regarding Axon Enterprise, Inc. (NASDAQ:AAXN).
Do Hedge Funds Think AAXN Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AAXN over the last 21 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Axon Enterprise, Inc. (NASDAQ:AAXN) was held by Abdiel Capital Advisors, which reported holding $198.2 million worth of stock at the end of September. It was followed by Polar Capital with a $73.8 million position. Other investors bullish on the company included Broadwood Capital, Composite Capital, and Motley Fool Asset Management. In terms of the portfolio weights assigned to each position Composite Capital allocated the biggest weight to Axon Enterprise, Inc. (NASDAQ:AAXN), around 10.22% of its 13F portfolio. Abdiel Capital Advisors is also relatively very bullish on the stock, earmarking 6.22 percent of its 13F equity portfolio to AAXN.
Since Axon Enterprise, Inc. (NASDAQ:AAXN) has witnessed declining sentiment from the smart money, we can see that there lies a certain "tier" of fund managers that elected to cut their full holdings by the end of the third quarter. Intriguingly, Mark Kingdon's Kingdon Capital cut the largest stake of the 750 funds watched by Insider Monkey, totaling an estimated $7.9 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund dropped about $6.5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 7 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Axon Enterprise, Inc. (NASDAQ:AAXN) but similarly valued. We will take a look at Columbia Sportswear Company (NASDAQ:COLM), Cemex SAB de CV (NYSE:CX), FirstService Corporation (TSE:FSV), BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), InVitae Corporation (NYSE:NVTA), Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI), and Huntington Ingalls Industries Inc (NYSE:HII). This group of stocks' market caps resemble AAXN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COLM,19,48542,2 CX,16,282686,3 FSV,12,218348,1 BJ,31,259627,0 NVTA,24,1221576,8 OLLI,34,227297,10 HII,29,321301,-1 Average,23.6,368482,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $528 million in AAXN's case. Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) is the most popular stock in this table. On the other hand FirstService Corporation (TSE:FSV) is the least popular one with only 12 bullish hedge fund positions. Axon Enterprise, Inc. (NASDAQ:AAXN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AAXN is 68.1. 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 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on AAXN as the stock returned 38.2% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.