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Were Hedge Funds Right About Selling Avery Dennison Corporation (AVY)?

Reymerlyn Martin

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Avery Dennison Corporation (NYSE:AVY) from the perspective of those elite funds.

Is Avery Dennison Corporation (NYSE:AVY) a buy, sell, or hold? Money managers are selling. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that AVY isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 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.

Paul Marshall Marshall Wace

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, 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 analyze the new hedge fund action regarding Avery Dennison Corporation (NYSE:AVY).

What does smart money think about Avery Dennison Corporation (NYSE:AVY)?

Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in AVY over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

AVY_oct2019

The largest stake in Avery Dennison Corporation (NYSE:AVY) was held by Adage Capital Management, which reported holding $118.9 million worth of stock at the end of March. It was followed by AQR Capital Management with a $53.8 million position. Other investors bullish on the company included Citadel Investment Group, Marshall Wace LLP, and Renaissance Technologies.

Since Avery Dennison Corporation (NYSE:AVY) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there were a few hedge funds who were dropping their entire stakes heading into Q3. At the top of the heap, Steve Cohen's Point72 Asset Management dropped the largest position of the "upper crust" of funds tracked by Insider Monkey, comprising close to $20.5 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund sold off about $5.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Avery Dennison Corporation (NYSE:AVY) but similarly valued. We will take a look at Under Armour Inc (NYSE:UA), Shaw Communications Inc (NYSE:SJR), Teledyne Technologies Incorporated (NYSE:TDY), and Alleghany Corporation (NYSE:Y). This group of stocks' market values are closest to AVY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UA,38,1083451,8 SJR,12,286524,0 TDY,26,642702,-2 Y,26,361790,3 Average,25.5,593617,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $594 million. That figure was $243 million in AVY's case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Avery Dennison Corporation (NYSE:AVY) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AVY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AVY investors were disappointed as the stock returned -1.3% 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 among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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