How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ambarella Inc (NASDAQ:AMBA) and determine whether hedge funds had an edge regarding this stock.
Is Ambarella Inc (NASDAQ:AMBA) a bargain? Hedge funds were becoming more confident. The number of long hedge fund bets inched up by 6 lately. Ambarella Inc (NASDAQ:AMBA) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. Our calculations also showed that AMBA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 21 hedge funds in our database with AMBA holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most investors, hedge funds are viewed as unimportant, old financial vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the crème de la crème of this club, around 850 funds. It is estimated that this group of investors watch over most of all hedge funds' total asset base, and by tailing their first-class picks, Insider Monkey has unsheathed various investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's review the recent hedge fund action surrounding Ambarella Inc (NASDAQ:AMBA).
What have hedge funds been doing with Ambarella Inc (NASDAQ:AMBA)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in AMBA a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Ambarella Inc (NASDAQ:AMBA) was held by Renaissance Technologies, which reported holding $72.2 million worth of stock at the end of September. It was followed by D E Shaw with a $18.7 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and KCL Capital. In terms of the portfolio weights assigned to each position P.A.W. CAPITAL PARTNERS allocated the biggest weight to Ambarella Inc (NASDAQ:AMBA), around 3.37% of its 13F portfolio. KCL Capital is also relatively very bullish on the stock, dishing out 2.49 percent of its 13F equity portfolio to AMBA.
As one would reasonably expect, specific money managers were breaking ground themselves. KCL Capital, managed by Kevin Cottrell and Chris LaSusa, assembled the most valuable position in Ambarella Inc (NASDAQ:AMBA). KCL Capital had $11.5 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker's Woodline Partners also initiated a $5.8 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, Michael Gelband's ExodusPoint Capital, and Benjamin A. Smith's Laurion Capital Management.
Let's check out hedge fund activity in other stocks similar to Ambarella Inc (NASDAQ:AMBA). These stocks are EverQuote, Inc. (NASDAQ:EVER), 360 DigiTech, Inc. (NASDAQ:QFIN), Noah Holdings Limited (NYSE:NOAH), Otter Tail Corporation (NASDAQ:OTTR), Retail Properties of America Inc (NYSE:RPAI), B&G Foods, Inc. (NYSE:BGS), and SITE Centers Corp. (NYSE:SITC). All of these stocks' market caps resemble AMBA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVER,23,271845,0 QFIN,12,64598,9 NOAH,18,335783,4 OTTR,12,57260,0 RPAI,11,83957,-9 BGS,13,62313,0 SITC,15,73788,-6 Average,14.9,135649,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $171 million in AMBA's case. EverQuote, Inc. (NASDAQ:EVER) is the most popular stock in this table. On the other hand Retail Properties of America Inc (NYSE:RPAI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Ambarella Inc (NASDAQ:AMBA) is more popular among hedge funds. Our overall hedge fund sentiment score for AMBA is 87. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 21.3% in 2020 through September 25th but still managed to beat the market by 17.7 percentage points. Hedge funds were also right about betting on AMBA as the stock returned 8.3% since the end of June 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.
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Disclosure: None. This article was originally published at Insider Monkey.