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Amphenol Corporation (APH) vs. Hedge Fund Favorites in 2019

Debasis Saha

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Amphenol Corporation (NYSE:APH).

Amphenol Corporation (NYSE:APH) shareholders have witnessed an increase in enthusiasm from smart money recently. Our calculations also showed that APH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/caption]

Ken Griffin

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to take a glance at the fresh hedge fund action surrounding Amphenol Corporation (NYSE:APH).

What does smart money think about Amphenol Corporation (NYSE:APH)?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in APH a year ago. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is APH A Good Stock To Buy?

The largest stake in Amphenol Corporation (NYSE:APH) was held by Select Equity Group, which reported holding $415.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $109.9 million position. Other investors bullish on the company included Alyeska Investment Group, Adage Capital Management, and Marshall Wace. In terms of the portfolio weights assigned to each position Thames Capital Management allocated the biggest weight to Amphenol Corporation (NYSE:APH), around 3.68% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 2.81 percent of its 13F equity portfolio to APH.

As industrywide interest jumped, some big names have jumped into Amphenol Corporation (NYSE:APH) headfirst. Alyeska Investment Group, managed by Anand Parekh, created the most outsized position in Amphenol Corporation (NYSE:APH). Alyeska Investment Group had $77.5 million invested in the company at the end of the quarter. Jay Genzer's Thames Capital Management also initiated a $12.4 million position during the quarter. The other funds with brand new APH positions are Louis Bacon's Moore Global Investments, Michael Kharitonov and Jon David McAuliffe's Voleon Capital, and John Brennan's Sirios Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Amphenol Corporation (NYSE:APH) but similarly valued. We will take a look at Nutrien Ltd. (NYSE:NTR), Alcon Inc. (NYSE:ALC), Canon Inc. (NYSE:CAJ), and Motorola Solutions Inc (NYSE:MSI). This group of stocks' market caps are closest to APH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTR,25,174521,3 ALC,22,482231,4 CAJ,8,95141,2 MSI,33,932771,8 Average,22,421166,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $421 million. That figure was $759 million in APH's case. Motorola Solutions Inc (NYSE:MSI) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. Amphenol Corporation (NYSE:APH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on APH, though not to the same extent, as the stock returned 33.7% during 2019 (as of 12/23) and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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