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Did Hedge Funds Drop The Ball On Avery Dennison Corporation (AVY) ?

Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Avery Dennison Corporation (NYSE:AVY).

Is Avery Dennison Corporation (NYSE:AVY) an outstanding investment now? The best stock pickers are becoming less confident. The number of long hedge fund bets were cut by 1 in recent months. Our calculations also showed that AVY isn’t among the 30 most popular stocks among hedge funds. AVY was in 28 hedge funds’ portfolios at the end of December. There were 29 hedge funds in our database with AVY positions at the end of the previous quarter.

In today’s marketplace there are several indicators investors employ to assess publicly traded companies. Two of the less utilized indicators 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 S&P 500 by a very impressive margin (see the details here).

Steve Cohen SAC CAPITAL ADVISORS

Let’s take a look at the recent hedge fund action surrounding Avery Dennison Corporation (NYSE:AVY).

How are hedge funds trading Avery Dennison Corporation (NYSE:AVY)?

At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AVY over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AVY

More specifically, Citadel Investment Group was the largest shareholder of Avery Dennison Corporation (NYSE:AVY), with a stake worth $113.8 million reported as of the end of September. Trailing Citadel Investment Group was Adage Capital Management, which amassed a stake valued at $87.2 million. AQR Capital Management, Point72 Asset Management, and Echo Street Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Avery Dennison Corporation (NYSE:AVY) has faced declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Matthew Tewksbury’s Stevens Capital Management sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $3.7 million in stock, and Mariko Gordon’s Daruma Asset Management was right behind this move, as the fund dropped about $3.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s go over 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 Brown & Brown, Inc. (NYSE:BRO), EXACT Sciences Corporation (NASDAQ:EXAS), National Retail Properties, Inc. (NYSE:NNN), and The Ultimate Software Group, Inc. (NASDAQ:ULTI). This group of stocks’ market valuations match AVY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRO 20 675949 -2
EXAS 30 672423 -3
NNN 15 263404 4
ULTI 20 289161 -5
Average 21.25 475234 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $475 million. That figure was $475 million in AVY’s case. EXACT Sciences Corporation (NASDAQ:EXAS) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 15 bullish hedge fund positions. Avery Dennison Corporation (NYSE:AVY) 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. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on AVY as the stock returned 27.4% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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

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