Archrock Inc (AROC): Are Hedge Funds Right About This Stock?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Archrock Inc (NYSE:AROC).

Archrock Inc (NYSE:AROC) was included in the 13F portfolios of 18 funds from our database at the end of September. The company saw an increase in enthusiasm from smart money during the third quarter, as there had been 16 funds bullish on the stock at the end of June. 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 Ply Gem Holdings Inc (NYSE:PGEM), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), and Wabash National Corporation (NYSE:WNC) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s take a peek at the latest action surrounding Archrock Inc (NYSE:AROC).

Hedge fund activity in Archrock Inc (NYSE:AROC)

Heading into the fourth quarter of 2016, 18 funds tracked by Insider Monkey were long Archrock Inc (NYSE:AROC), a change of 13% from the second quarter of 2016. On the other hand, there were a total of 23 hedge funds with a bullish position in AROC at the beginning of this year. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Clint Carlson’s Carlson Capital has the number one position in Archrock Inc (NYSE:AROC), worth close to $121.1 million, comprising 1.5% of its total 13F portfolio. On Carlson Capital’s heels is Gotham Asset Management, led by Joel Greenblatt, which holds a $11 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions contain D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Point72 Asset Management, led by Steve Cohen, established the most outsized position in Archrock Inc (NYSE:AROC). Point72 Asset Management had $6.1 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, George Hall’s Clinton Group, and Andrew Weiss’ Weiss Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Archrock Inc (NYSE:AROC) but similarly valued. These stocks are Ply Gem Holdings Inc (NYSE:PGEM), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), Wabash National Corporation (NYSE:WNC), and Nevsun Resources (USA) (NYSEAMEX:NSU). This group of stocks’ market valuations match AROC’s market valuation.

As you can see these stocks had an average of 17 funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $176 million in AROC’s case. Ply Gem Holdings Inc (NYSE:PGEM) is the most popular stock in this table. On the other hand Nevsun Resources (USA) (NYSEAMEX:NSU) is the least popular one with only 12 investors having reported long positions. Archrock Inc (NYSE:AROC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Ply Gem Holdings Inc (NYSE:PGEM) might be a better candidate to consider taking a long position in.

Disclosure: none