Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is Appian Corporation (NASDAQ:APPN) a healthy stock for your portfolio? Money managers are becoming more confident. The number of bullish hedge fund bets increased by 5 in recent months. Our calculations also showed that APPN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). APPN was in 17 hedge funds' portfolios at the end of September. There were 12 hedge funds in our database with APPN holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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_670343" align="aligncenter" width="473"] Colin Moran of Abdiel Capital Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's review the new hedge fund action encompassing Appian Corporation (NASDAQ:APPN).
How have hedgies been trading Appian Corporation (NASDAQ:APPN)?
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in APPN over the last 17 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Appian Corporation (NASDAQ:APPN) was held by Abdiel Capital Advisors, which reported holding $352.7 million worth of stock at the end of September. It was followed by D E Shaw with a $57.8 million position. Other investors bullish on the company included Engle Capital, StackLine Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Appian Corporation (NASDAQ:APPN), around 21.66% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, dishing out 6.61 percent of its 13F equity portfolio to APPN.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in Appian Corporation (NASDAQ:APPN). Citadel Investment Group had $9.2 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $4.1 million investment in the stock during the quarter. The other funds with brand new APPN positions are Marc Lisker, Glenn Fuhrman and John Phelan's MSDC Management, Benjamin A. Smith's Laurion Capital Management, and Parvinder Thiara's Athanor Capital.
Let's check out hedge fund activity in other stocks similar to Appian Corporation (NASDAQ:APPN). We will take a look at Olin Corporation (NYSE:OLN), Agree Realty Corporation (NYSE:ADC), Alkermes Plc (NASDAQ:ALKS), and Lithia Motors Inc (NYSE:LAD). This group of stocks' market caps are closest to APPN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OLN,27,489655,4 ADC,9,113090,-2 ALKS,24,360734,1 LAD,24,628887,3 Average,21,398092,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $398 million. That figure was $475 million in APPN's case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 9 bullish hedge fund positions. Appian Corporation (NASDAQ:APPN) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately APPN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); APPN investors were disappointed as the stock returned -9.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.