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Were Hedge Funds Right About Piling Into Akamai Technologies, Inc. (AKAM)?

Abigail Fisher
·6 min read

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 Akamai Technologies, Inc. (NASDAQ:AKAM) and determine whether hedge funds had an edge regarding this stock.

Is Akamai Technologies, Inc. (NASDAQ:AKAM) a buy, sell, or hold? The best stock pickers were getting more optimistic. The number of long hedge fund bets inched up by 4 in recent months. Our calculations also showed that AKAM isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

To the average investor there are dozens of tools market participants use to value publicly traded companies. A pair of the most useful tools are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the best investment managers can outpace the S&P 500 by a significant amount (see the details here).

[caption id="attachment_69704" align="aligncenter" width="391"] Andrew Sandler of Sandler Capital Management[/caption]

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to check out the recent hedge fund action surrounding Akamai Technologies, Inc. (NASDAQ:AKAM).

How are hedge funds trading Akamai Technologies, Inc. (NASDAQ:AKAM)?

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AKAM over the last 18 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Akamai Technologies, Inc. (NASDAQ:AKAM), with a stake worth $300.4 million reported as of the end of September. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $86.5 million. Citadel Investment Group, Alyeska Investment Group, and Polar 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 SG Capital Management allocated the biggest weight to Akamai Technologies, Inc. (NASDAQ:AKAM), around 3.42% of its 13F portfolio. Sandler Capital Management is also relatively very bullish on the stock, dishing out 3.26 percent of its 13F equity portfolio to AKAM.

Consequently, key hedge funds were breaking ground themselves. Sandler Capital Management, managed by Andrew Sandler, initiated the biggest position in Akamai Technologies, Inc. (NASDAQ:AKAM). Sandler Capital Management had $23.6 million invested in the company at the end of the quarter. George McCabe's Portolan Capital Management also initiated a $19.7 million position during the quarter. The following funds were also among the new AKAM investors: Mark Coe's Intrinsic Edge Capital, Kevin Cottrell and Chris LaSusa's KCL Capital, and Ken Grossman and Glen Schneider's SG Capital Management.

Let's also examine hedge fund activity in other stocks similar to Akamai Technologies, Inc. (NASDAQ:AKAM). We will take a look at The Cooper Companies, Inc. (NYSE:COO), Best Buy Co., Inc. (NYSE:BBY), Essex Property Trust Inc (NYSE:ESS), and Fiat Chrysler Automobiles NV (NYSE:FCAU). This group of stocks' market valuations resemble AKAM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COO,25,931667,-3 BBY,37,633714,12 ESS,31,368188,-2 FCAU,25,395391,2 Average,29.5,582240,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $582 million. That figure was $757 million in AKAM's case. Best Buy Co., Inc. (NYSE:BBY) is the most popular stock in this table. On the other hand The Cooper Companies, Inc. (NYSE:COO) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Akamai Technologies, Inc. (NASDAQ:AKAM) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately AKAM wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AKAM were disappointed as the stock returned 17.1% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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