U.S. Markets close in 3 hrs 45 mins

Hedge Funds Have Never Been This Bullish On Avalara, Inc. (AVLR)

Nina Todic

Is Avalara, Inc. (NYSE:AVLR) a good equity to bet on 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.

Avalara, Inc. (NYSE:AVLR) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that AVLR isn't among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the recent hedge fund action surrounding Avalara, Inc. (NYSE:AVLR).

What does smart money think about Avalara, Inc. (NYSE:AVLR)?

At Q2's end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 48% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVLR over the last 16 quarters. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

No of Hedge Funds with AVLR Positions

According to Insider Monkey's hedge fund database, Alkeon Capital Management, managed by Panayotis Takis Sparaggis, holds the most valuable position in Avalara, Inc. (NYSE:AVLR). Alkeon Capital Management has a $239.4 million position in the stock, comprising 0.9% of its 13F portfolio. The second largest stake is held by Whale Rock Capital Management, led by Alex Sacerdote, holding a $203 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass Edward Gilhuly and Scott Stuart's Sageview Capital, Renaissance Technologies and Douglas Dossey and Arthur Young's Tensile Capital.

As aggregate interest increased, key money managers were breaking ground themselves. Whale Rock Capital Management, managed by Alex Sacerdote, initiated the largest position in Avalara, Inc. (NYSE:AVLR). Whale Rock Capital Management had $203 million invested in the company at the end of the quarter. Renaissance Technologies also made a $94.8 million investment in the stock during the quarter. The other funds with new positions in the stock are James Crichton's Hitchwood Capital Management, Leon Shaulov's Maplelane Capital, and Robert Boucai's Newbrook Capital Advisors.

Let's check out hedge fund activity in other stocks similar to Avalara, Inc. (NYSE:AVLR). These stocks are Companhia Energetica de Minas Gerais (NYSE:CIG), Cousins Properties Incorporated (NYSE:CUZ), Synovus Financial Corp. (NYSE:SNV), and Brixmor Property Group Inc (NYSE:BRX). All of these stocks' market caps are closest to AVLR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIG,8,49080,-1 CUZ,22,220870,0 SNV,36,703965,-5 BRX,15,119984,3 Average,20.25,273475,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $1167 million in AVLR's case. Synovus Financial Corp. (NYSE:SNV) is the most popular stock in this table. On the other hand Companhia Energetica de Minas Gerais (NYSE:CIG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Avalara, Inc. (NYSE:AVLR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AVLR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AVLR were disappointed as the stock returned -6.8% during the third 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 (view the video below) among hedge funds as many of these stocks already outperformed the market in Q3. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content