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Should You Buy AAON, Inc. (AAON)?

Abigail Fisher
·6 mins read

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether AAON, Inc. (NASDAQ:AAON) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Hedge fund interest in AAON, Inc. (NASDAQ:AAON) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Tower Semiconductor Ltd. (NASDAQ:TSEM), WesBanco, Inc. (NASDAQ:WSBC), and National Vision Holdings, Inc. (NASDAQ:EYE) to gather more data points. Our calculations also showed that AAON isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26029" align="aligncenter" width="399"] Steven Cohen of Point72 Asset Management[/caption]

Steven Cohen
Steven Cohen

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we're going to check out the latest hedge fund action encompassing AAON, Inc. (NASDAQ:AAON).

How have hedgies been trading AAON, Inc. (NASDAQ:AAON)?

At Q4's end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AAON 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.

Among these funds, Winton Capital Management held the most valuable stake in AAON, Inc. (NASDAQ:AAON), which was worth $6.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $1.8 million worth of shares. Balyasny Asset Management, AQR Capital Management, and Millennium Management 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 Weld Capital Management allocated the biggest weight to AAON, Inc. (NASDAQ:AAON), around 0.15% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to AAON.

Since AAON, Inc. (NASDAQ:AAON) has experienced bearish sentiment from the smart money, it's easy to see that there is a sect of funds who sold off their positions entirely heading into Q4. It's worth mentioning that Renaissance Technologies said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, worth close to $0.5 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dropped about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as AAON, Inc. (NASDAQ:AAON) but similarly valued. These stocks are Tower Semiconductor Ltd. (NASDAQ:TSEM), WesBanco, Inc. (NASDAQ:WSBC), National Vision Holdings, Inc. (NASDAQ:EYE), and Endava plc (NYSE:DAVA). This group of stocks' market valuations match AAON's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSEM,16,431900,2 WSBC,11,56936,0 EYE,15,387263,-10 DAVA,7,59418,2 Average,12.25,233879,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $234 million. That figure was $12 million in AAON's case. Tower Semiconductor Ltd. (NASDAQ:TSEM) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks AAON, Inc. (NASDAQ:AAON) is even less popular than DAVA. Hedge funds clearly dropped the ball on AAON as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on AAON as the stock returned -2.4% during the same time period and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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

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