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Hedge Funds Are Still Crazy About Avaya Holdings Corp. (AVYA)

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 34.7% through November 22nd and outperformed the broader market benchmark by 8.5 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Avaya Holdings Corp. (NYSE:AVYA) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that AVYA isn’t among the 30 most popular stocks among hedge funds. Nevertheless, overall hedge fund sentiment, which hit its all time high last quarter, is still extremely bullish.

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the latest hedge fund action encompassing Avaya Holdings Corp. (NYSE:AVYA).

How are hedge funds trading Avaya Holdings Corp. (NYSE:AVYA)?

At Q3’s end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AVYA over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with AVYA Positions

Among these funds, Melqart Asset Management held the most valuable stake in Avaya Holdings Corp. (NYSE:AVYA), which was worth $35.9 million at the end of the third quarter. On the second spot was Highland Capital Management which amassed $35.7 million worth of shares. Anchorage Advisors, Taconic Capital, and HPS Investment Partners 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 HPS Investment Partners allocated the biggest weight to Avaya Holdings Corp. (NYSE:AVYA), around 42.31% of its portfolio. DW Partners is also relatively very bullish on the stock, dishing out 16.44 percent of its 13F equity portfolio to AVYA.

Since Avaya Holdings Corp. (NYSE:AVYA) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that slashed their full holdings last quarter. At the top of the heap, Tom Wagner and Ara Cohen’s Knighthead Capital sold off the largest position of the 750 funds followed by Insider Monkey, comprising close to $15.9 million in call options, and David Rosen’s Rubric Capital Management was right behind this move, as the fund cut about $15.2 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Avaya Holdings Corp. (NYSE:AVYA). We will take a look at Lakeland Financial Corporation (NASDAQ:LKFN), Editas Medicine, Inc. (NASDAQ:EDIT), Hudson Ltd. (NYSE:HUD), and SRC Energy Inc. (NYSE:SRCI). All of these stocks’ market caps resemble AVYA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LKFN 10 20174 -1
EDIT 11 100575 -3
HUD 12 31637 0
SRCI 20 245795 1
Average 13.25 99545 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $259 million in AVYA’s case. SRC Energy Inc. (NYSE:SRCI) is the most popular stock in this table. On the other hand Lakeland Financial Corporation (NASDAQ:LKFN) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Avaya Holdings Corp. (NYSE:AVYA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on AVYA as the stock returned 17.5% during Q4 (through 11/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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