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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding SYNNEX Corporation (NYSE:SNX) and determine whether hedge funds had an edge regarding this stock.
Hedge fund interest in SYNNEX Corporation (NYSE:SNX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SNX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 OGE Energy Corp. (NYSE:OGE), Syneos Health, Inc. (NASDAQ:SYNH), and Athene Holding Ltd. (NYSE:ATH) to gather more data points. Our calculations also showed that SNX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Keeping this in mind let's take a glance at the fresh hedge fund action encompassing SYNNEX Corporation (NYSE:SNX).
How have hedgies been trading SYNNEX Corporation (NYSE:SNX)?
At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in SNX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Lyrical Asset Management was the largest shareholder of SYNNEX Corporation (NYSE:SNX), with a stake worth $133.9 million reported as of the end of September. Trailing Lyrical Asset Management was AQR Capital Management, which amassed a stake valued at $123.6 million. Select Equity Group, Abrams Bison Investments, and Arrowstreet Capital 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 Abrams Bison Investments allocated the biggest weight to SYNNEX Corporation (NYSE:SNX), around 13.03% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, earmarking 2.64 percent of its 13F equity portfolio to SNX.
Because SYNNEX Corporation (NYSE:SNX) has faced bearish sentiment from hedge fund managers, it's safe to say that there was a specific group of hedge funds that slashed their entire stakes by the end of the second quarter. It's worth mentioning that Michael Rockefeller and KarláKroeker's Woodline Partners dropped the largest investment of all the hedgies followed by Insider Monkey, comprising an estimated $9.7 million in stock, and Alec Litowitz and Ross Laser's Magnetar Capital was right behind this move, as the fund said goodbye to about $0.5 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to SYNNEX Corporation (NYSE:SNX). We will take a look at OGE Energy Corp. (NYSE:OGE), Syneos Health, Inc. (NASDAQ:SYNH), Athene Holding Ltd. (NYSE:ATH), Elbit Systems Ltd. (NASDAQ:ESLT), Robert Half International Inc. (NYSE:RHI), Reliance Steel & Aluminum Co. (NYSE:RS), and Morningstar, Inc. (NASDAQ:MORN). This group of stocks' market values resemble SNX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OGE,25,174922,4 SYNH,29,354964,7 ATH,33,765101,1 ESLT,4,11024,-2 RHI,28,300880,2 RS,27,221183,4 MORN,20,292962,7 Average,23.7,303005,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.7 hedge funds with bullish positions and the average amount invested in these stocks was $303 million. That figure was $502 million in SNX's case. Athene Holding Ltd. (NYSE:ATH) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 4 bullish hedge fund positions. SYNNEX Corporation (NYSE:SNX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SNX is 69.5. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately SNX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on SNX were disappointed as the stock returned 6.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.