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Hedge Funds Are Dipping Their Toes Back Into Avalara, Inc. (AVLR)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Avalara, Inc. (NYSE:AVLR) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Avalara, Inc. (NYSE:AVLR) a sound investment now? Prominent investors were in a bullish mood. The number of long hedge fund bets went up by 3 lately. Avalara, Inc. (NYSE:AVLR) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 48. Our calculations also showed that AVLR 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools 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 broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Now let’s view the recent hedge fund action surrounding Avalara, Inc. (NYSE:AVLR).

How are hedge funds trading Avalara, Inc. (NYSE:AVLR)?

At second quarter’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. By comparison, 40 hedge funds held shares or bullish call options in AVLR a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

More specifically, Alkeon Capital Management was the largest shareholder of Avalara, Inc. (NYSE:AVLR), with a stake worth $344.5 million reported as of the end of September. Trailing Alkeon Capital Management was Whale Rock Capital Management, which amassed a stake valued at $275.3 million. Renaissance Technologies, Tensile Capital, and SQN Investors 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 Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 25.73% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, earmarking 7.23 percent of its 13F equity portfolio to AVLR.

Now, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Avalara, Inc. (NYSE:AVLR). Point72 Asset Management had $10.1 million invested in the company at the end of the quarter. Seymour Sy Kaufman and Michael Stark’s Crosslink Capital also made a $8.7 million investment in the stock during the quarter. The following funds were also among the new AVLR investors: Tor Minesuk’s Mondrian Capital, Noam Gottesman’s GLG Partners, and David Harding’s Winton Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Avalara, Inc. (NYSE:AVLR) but similarly valued. We will take a look at CBOE Global Markets Inc (NASDAQ:CBOE), Huazhu Group Limited (NASDAQ:HTHT), Icahn Enterprises LP (NASDAQ:IEP), Franklin Resources, Inc. (NYSE:BEN), Essential Utilities Inc (NYSE:WTRG), Cincinnati Financial Corporation (NASDAQ:CINF), and Hasbro, Inc. (NASDAQ:HAS). This group of stocks’ market values match AVLR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBOE 32 840386 -6
HTHT 17 381209 0
IEP 3 9994902 0
BEN 36 410167 4
WTRG 15 536751 -8
CINF 20 604548 -11
HAS 23 149844 -2
Average 20.9 1845401 -3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $1845 million. That figure was $1446 million in AVLR’s case. Franklin Resources, Inc. (NYSE:BEN) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Avalara, Inc. (NYSE:AVLR) is more popular among hedge funds. Our overall hedge fund sentiment score for AVLR is 81.1. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately AVLR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AVLR were disappointed as the stock returned -0.5% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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