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Is AeroVironment, Inc. (AVAV) Going to Burn These Hedge Funds?

Nina Todic

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is AeroVironment, Inc. (NASDAQ:AVAV) an exceptional investment today? Investors who are in the know are selling. The number of bullish hedge fund bets fell by 1 in recent months. Our calculations also showed that AVAV isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the latest hedge fund action regarding AeroVironment, Inc. (NASDAQ:AVAV).

Hedge fund activity in AeroVironment, Inc. (NASDAQ:AVAV)

At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in AVAV a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with AVAV Positions

The largest stake in AeroVironment, Inc. (NASDAQ:AVAV) was held by Renaissance Technologies, which reported holding $16.8 million worth of stock at the end of March. It was followed by Fisher Asset Management with a $11.1 million position. Other investors bullish on the company included Citadel Investment Group, Two Sigma Advisors, and Millennium Management.

Since AeroVironment, Inc. (NASDAQ:AVAV) has faced declining sentiment from the smart money, we can see that there is a sect of funds that elected to cut their entire stakes in the second quarter. At the top of the heap, Matthew Hulsizer's PEAK6 Capital Management dropped the biggest stake of all the hedgies watched by Insider Monkey, totaling about $1.8 million in stock. Minhua Zhang's fund, Weld Capital Management, also cut its stock, about $0.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds in the second quarter.

Let's go over hedge fund activity in other stocks similar to AeroVironment, Inc. (NASDAQ:AVAV). We will take a look at Warrior Met Coal, Inc. (NYSE:HCC), First Commonwealth Financial Corporation (NYSE:FCF), Noble Midstream Partners LP (NYSE:NBLX), and Aimmune Therapeutics Inc (NASDAQ:AIMT). This group of stocks' market valuations match AVAV's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HCC,31,391656,-4 FCF,12,38937,-3 NBLX,4,5889,0 AIMT,13,182284,-2 Average,15,154692,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $39 million in AVAV's case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 4 bullish hedge fund positions. AeroVironment, Inc. (NASDAQ:AVAV) is not the least popular stock in this group but hedge fund interest is still below average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AVAV wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AVAV investors were disappointed as the stock returned -5.7% during the third quarter 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 in 2019.

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

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