Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Archrock, Inc. (NYSE:AROC).
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 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to view the new hedge fund action surrounding Archrock, Inc. (NYSE:AROC).
What have hedge funds been doing with Archrock, Inc. (NYSE:AROC)?
Heading into the second quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in AROC a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Archrock, Inc. (NYSE:AROC), which was worth $14.1 million at the end of the first quarter. On the second spot was Arrowstreet Capital which amassed $7.1 million worth of shares. Moreover, Citadel Investment Group, D E Shaw, and Royce & Associates were also bullish on Archrock, Inc. (NYSE:AROC), allocating a large percentage of their portfolios to this stock.
Due to the fact that Archrock, Inc. (NYSE:AROC) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of money managers that slashed their positions entirely last quarter. It's worth mentioning that Ken Grossman and Glen Schneider's SG Capital Management dumped the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth about $4.8 million in stock. Charles Davidson and Joseph Jacobs's fund, Wexford Capital, also dumped its stock, about $0.8 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Archrock, Inc. (NYSE:AROC). These stocks are Masonite International Corp (NYSE:DOOR), Pitney Bowes Inc. (NYSE:PBI), Theravance Biopharma Inc (NASDAQ:TBPH), and Hawaiian Holdings, Inc. (NASDAQ:HA). This group of stocks' market caps are closest to AROC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DOOR,21,245812,2 PBI,24,104429,4 TBPH,9,532693,1 HA,14,102577,0 Average,17,246378,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $246 million. That figure was $39 million in AROC's case. Pitney Bowes Inc. (NYSE:PBI) is the most popular stock in this table. On the other hand Theravance Biopharma Inc (NASDAQ:TBPH) is the least popular one with only 9 bullish hedge fund positions. Archrock, Inc. (NYSE:AROC) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AROC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AROC investors were disappointed as the stock returned -2% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.