Is Avery Dennison Corporation (AVY) Going to Burn These Hedge Funds?
Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Avery Dennison Corporation (NYSE:AVY) makes for a good investment right now.
Avery Dennison Corporation (NYSE:AVY) has seen a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that AVY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most stock holders, hedge funds are assumed to be underperforming, old financial vehicles of yesteryear. While there are greater than 8000 funds trading today, Our experts look at the leaders of this group, approximately 850 funds. These investment experts shepherd the lion's share of the hedge fund industry's total capital, and by paying attention to their top stock picks, Insider Monkey has found a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_30621" align="aligncenter" width="400"]
Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a gander at the fresh hedge fund action regarding Avery Dennison Corporation (NYSE:AVY).
How have hedgies been trading Avery Dennison Corporation (NYSE:AVY)?
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AVY over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the largest position in Avery Dennison Corporation (NYSE:AVY). AQR Capital Management has a $37.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On AQR Capital Management's heels is GLG Partners, led by Noam Gottesman, holding a $13.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain Phill Gross and Robert Atchinson's Adage Capital Management, Joel Greenblatt's Gotham Asset Management and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Bailard Inc allocated the biggest weight to Avery Dennison Corporation (NYSE:AVY), around 0.35% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to AVY.
Due to the fact that Avery Dennison Corporation (NYSE:AVY) has faced falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of funds that slashed their positions entirely heading into Q4. Interestingly, Renaissance Technologies dropped the biggest position of all the hedgies tracked by Insider Monkey, valued at close to $5.9 million in stock, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital was right behind this move, as the fund cut about $1.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to Avery Dennison Corporation (NYSE:AVY). We will take a look at Medical Properties Trust, Inc. (NYSE:MPW), Marathon Oil Corporation (NYSE:MRO), Rollins, Inc. (NYSE:ROL), and Fair Isaac Corporation (NYSE:FICO). All of these stocks' market caps are similar to AVY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MPW,14,186041,2 MRO,30,448735,-7 ROL,34,363525,5 FICO,45,1456753,1 Average,30.75,613764,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $614 million. That figure was $106 million in AVY's case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand Medical Properties Trust, Inc. (NYSE:MPW) is the least popular one with only 14 bullish hedge fund positions. Avery Dennison Corporation (NYSE:AVY) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately AVY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AVY investors were disappointed as the stock returned -25.5% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
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