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Do Hedge Funds Love Sonos, Inc. (SONO)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Sonos, Inc. (NASDAQ:SONO) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Sonos, Inc. (NASDAQ:SONO) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. SONO was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 29 hedge funds in our database with SONO holdings at the end of the previous quarter. Our calculations also showed that SONO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

To the average investor there are numerous tools stock market investors employ to grade stocks. A duo of the most under-the-radar tools are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the top hedge fund managers can outclass the market by a significant margin (see the details here).

David Brown Hawk Ridge Partners

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the key hedge fund action regarding Sonos, Inc. (NASDAQ:SONO).

How have hedgies been trading Sonos, Inc. (NASDAQ:SONO)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SONO over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Sonos, Inc. (NASDAQ:SONO), which was worth $35 million at the end of the third quarter. On the second spot was Greenspring Associates which amassed $27.6 million worth of shares. Hawk Ridge Management, Renaissance Technologies, and Trigran Investments 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 Greenspring Associates allocated the biggest weight to Sonos, Inc. (NASDAQ:SONO), around 7.28% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, designating 3.68 percent of its 13F equity portfolio to SONO.

Seeing as Sonos, Inc. (NASDAQ:SONO) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies that slashed their positions entirely by the end of the third quarter. At the top of the heap, Chet Kapoor’s Tenzing Global Investors cut the largest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $3.4 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund cut about $1.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sonos, Inc. (NASDAQ:SONO) but similarly valued. These stocks are Alexander’s, Inc. (NYSE:ALX), Grupo Simec S.A.B. de C.V. (NYSE:SIM), Broadmark Realty Capital Inc. (NYSE:BRMK), and Fresh Del Monte Produce Inc (NYSE:FDP). This group of stocks’ market caps resemble SONO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALX 13 115349 1
SIM 1 2589 0
BRMK 17 152022 2
FDP 11 42385 0
Average 10.5 78086 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $197 million in SONO’s case. Broadmark Realty Capital Inc. (NYSE:BRMK) is the most popular stock in this table. On the other hand Grupo Simec S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Sonos, Inc. (NASDAQ:SONO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately SONO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SONO were disappointed as the stock returned -44.4% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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