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Hedge Funds Aren’t Done Buying Sonos, Inc. (SONO)

Asma UL Husna

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 Sonos, Inc. (NASDAQ:SONO) a buy here? Hedge funds are turning bullish. The number of bullish hedge fund bets moved up by 6 recently. Our calculations also showed that SONO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Today there are dozens of tools shareholders employ to size up their stock investments. Two of the most underrated tools are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can outpace the market by a very impressive margin (see the details here).

[caption id="attachment_671014" align="aligncenter" width="600"] David Brown of Hawk Ridge Management[/caption]

David Brown Hawk Ridge Partners

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the latest hedge fund action encompassing Sonos, Inc. (NASDAQ:SONO).

Hedge fund activity in Sonos, Inc. (NASDAQ:SONO)

At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SONO over the last 17 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

SONO_dec2019

Among these funds, Hawk Ridge Management held the most valuable stake in Sonos, Inc. (NASDAQ:SONO), which was worth $26.4 million at the end of the third quarter. On the second spot was D E Shaw which amassed $18.2 million worth of shares. Trigran Investments, Citadel Investment Group, and Two Sigma Advisors 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 Hawk Ridge Management allocated the biggest weight to Sonos, Inc. (NASDAQ:SONO), around 5.29% of its portfolio. Potrero Capital Research is also relatively very bullish on the stock, dishing out 2.34 percent of its 13F equity portfolio to SONO.

Now, some big names have jumped into Sonos, Inc. (NASDAQ:SONO) headfirst. Driehaus Capital, managed by Richard Driehaus, established the largest position in Sonos, Inc. (NASDAQ:SONO). Driehaus Capital had $1.5 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $1 million position during the quarter. The other funds with brand new SONO positions are Principal Global Investors's Columbus Circle Investors, Minhua Zhang's Weld Capital Management, and Renaissance Technologies.

Let's check out hedge fund activity in other stocks similar to Sonos, Inc. (NASDAQ:SONO). We will take a look at The Liberty Braves Group (NASDAQ:BATRA), New York Mortgage Trust, Inc. (NASDAQ:NYMT), MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI), and Atkore International Group Inc. (NYSE:ATKR). This group of stocks' market values are closest to SONO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BATRA,9,68616,0 NYMT,10,25762,0 MTSI,14,197407,-3 ATKR,19,104150,2 Average,13,98984,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $101 million in SONO's case. Atkore International Group Inc. (NYSE:ATKR) is the most popular stock in this table. On the other hand The Liberty Braves Group (NASDAQ:BATRA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Sonos, Inc. (NASDAQ:SONO) is more popular among hedge funds. 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 SONO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SONO were disappointed as the stock returned 3.3% 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.

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