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Is APPN Stock A Buy or Sell?

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Appian Corporation (NASDAQ:APPN).

Is APPN stock a buy? Appian Corporation (NASDAQ:APPN) was in 24 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. APPN investors should be aware of an increase in enthusiasm from smart money in recent months. There were 15 hedge funds in our database with APPN positions at the end of the third quarter. Our calculations also showed that APPN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. With all of this in mind we're going to take a look at the recent hedge fund action regarding Appian Corporation (NASDAQ:APPN).

Do Hedge Funds Think APPN Is A Good Stock To Buy Now?

At fourth quarter's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in APPN over the last 22 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Abdiel Capital Advisors was the largest shareholder of Appian Corporation (NASDAQ:APPN), with a stake worth $993.8 million reported as of the end of December. Trailing Abdiel Capital Advisors was D E Shaw, which amassed a stake valued at $70.8 million. Citadel Investment Group, Marshall Wace LLP, and StackLine Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Appian Corporation (NASDAQ:APPN), around 28.06% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, earmarking 4.39 percent of its 13F equity portfolio to APPN.

As aggregate interest increased, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most valuable position in Appian Corporation (NASDAQ:APPN). Marshall Wace LLP had $13.5 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $9 million investment in the stock during the quarter. The following funds were also among the new APPN investors: Steve Cohen's Point72 Asset Management, Clayton Gardner and Joe Percoco's Titan Global Capital, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's also examine hedge fund activity in other stocks similar to Appian Corporation (NASDAQ:APPN). These stocks are UDR, Inc. (NYSE:UDR), Yatsen Holding Limited (NYSE:YSG), Whirlpool Corporation (NYSE:WHR), Kirkland Lake Gold Ltd. (NYSE:KL), Vail Resorts, Inc. (NYSE:MTN), Apollo Global Management Inc (NYSE:APO), and Paylocity Holding Corp (NASDAQ:PCTY). This group of stocks' market values resemble APPN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UDR,23,482699,-3 YSG,26,310970,26 WHR,32,1050870,4 KL,24,498090,2 MTN,31,937968,1 APO,30,2052942,2 PCTY,26,638940,-1 Average,27.4,853211,4.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $853 million. That figure was $1164 million in APPN's case. Whirlpool Corporation (NYSE:WHR) is the most popular stock in this table. On the other hand UDR, Inc. (NYSE:UDR) is the least popular one with only 23 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. Our overall hedge fund sentiment score for APPN is 45.6. 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. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately APPN wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); APPN investors were disappointed as the stock returned -22.3% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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