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Hedge Funds Are Coming Back To Avery Dennison Corporation (AVY)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Avery Dennison Corporation (NYSE:AVY) based on that data and determine whether they were really smart about the stock.

Is Avery Dennison Corporation (NYSE:AVY) the right investment to pursue these days? The smart money was betting on the stock. The number of long hedge fund bets advanced by 11 recently. Avery Dennison Corporation (NYSE:AVY) was in 29 hedge funds’ portfolios at the end of June. The all time high for this statistics is 30. Our calculations also showed that AVY isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a look at the latest hedge fund action regarding Avery Dennison Corporation (NYSE:AVY).

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

Heading into the third quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 61% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in AVY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Millennium Management held the most valuable stake in Avery Dennison Corporation (NYSE:AVY), which was worth $37.8 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $33.7 million worth of shares. Echo Street Capital Management, AQR Capital Management, and Appian Way Asset Management 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 Appian Way Asset Management allocated the biggest weight to Avery Dennison Corporation (NYSE:AVY), around 7.67% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 3.51 percent of its 13F equity portfolio to AVY.

With a general bullishness amongst the heavyweights, key money managers have jumped into Avery Dennison Corporation (NYSE:AVY) headfirst. Echo Street Capital Management, managed by Greg Poole, assembled the largest position in Avery Dennison Corporation (NYSE:AVY). Echo Street Capital Management had $14.4 million invested in the company at the end of the quarter. Andrew Byington’s Appian Way Asset Management also initiated a $13.3 million position during the quarter. The following funds were also among the new AVY investors: Steve Cohen’s Point72 Asset Management, Seth Cogswell’s Running Oak Capital, and Robert Vincent McHugh’s Jade Capital Advisors.

Let’s go over hedge fund activity in other stocks similar to Avery Dennison Corporation (NYSE:AVY). These stocks are Packaging Corporation Of America (NYSE:PKG), Eastman Chemical Company (NYSE:EMN), Raymond James Financial, Inc. (NYSE:RJF), Allegion plc (NYSE:ALLE), Quidel Corporation (NASDAQ:QDEL), CenterPoint Energy, Inc. (NYSE:CNP), and Annaly Capital Management, Inc. (NYSE:NLY). All of these stocks’ market caps resemble AVY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PKG 25 101486 2
EMN 27 184901 -2
RJF 35 436156 4
ALLE 29 424856 -2
QDEL 32 282861 10
CNP 30 480314 -2
NLY 21 288668 -6
Average 28.4 314177 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $176 million in AVY’s case. Raymond James Financial, Inc. (NYSE:RJF) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 21 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. Our overall hedge fund sentiment score for AVY is 67.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately AVY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AVY were disappointed as the stock returned 7.3% during the same time period 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 many of these stocks already outperformed the market so far this year.

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