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Hedge Funds Have Never Been This Bullish On Axon Enterprise, Inc. (AAXN)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. Stocks kept going up since then. In this article we look at how hedge funds traded Axon Enterprise, Inc. (NASDAQ:AAXN) and determine whether the smart money was really smart about this stock.

Axon Enterprise, Inc. (NASDAQ:AAXN) has seen an increase in hedge fund sentiment of late. Axon Enterprise, Inc. (NASDAQ:AAXN) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 26 hedge funds in our database with AAXN holdings at the end of March. Our calculations also showed that AAXN 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

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. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding Axon Enterprise, Inc. (NASDAQ:AAXN).

How have hedgies been trading Axon Enterprise, Inc. (NASDAQ:AAXN)?

At Q2’s end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the first quarter of 2020. By comparison, 16 hedge funds held shares or bullish call options in AAXN a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Colin Moran’s Abdiel Capital Advisors has the most valuable position in Axon Enterprise, Inc. (NASDAQ:AAXN), worth close to $214.4 million, accounting for 6.3% of its total 13F portfolio. Coming in second is Neal C. Bradsher of Broadwood Capital, with a $74.6 million position; 5.8% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish consist of Brian Ashford-Russell and Tim Woolley’s Polar Capital, David Ma’s Composite Capital and Michel Massoud’s Melqart Asset Management. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Axon Enterprise, Inc. (NASDAQ:AAXN), around 6.33% of its 13F portfolio. Broadwood Capital is also relatively very bullish on the stock, dishing out 5.83 percent of its 13F equity portfolio to AAXN.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Composite Capital, managed by David Ma, established the most outsized position in Axon Enterprise, Inc. (NASDAQ:AAXN). Composite Capital had $54.1 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $9.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Mark Kingdon’s Kingdon Capital, Principal Global Investors’s Columbus Circle Investors, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Axon Enterprise, Inc. (NASDAQ:AAXN) but similarly valued. These stocks are Farfetch Limited (NYSE:FTCH), Donaldson Company, Inc. (NYSE:DCI), Sensata Technologies Holding plc (NYSE:ST), Santander Consumer USA Holdings Inc (NYSE:SC), Bunge Limited (NYSE:BG), Aluminum Corp. of China Limited (NYSE:ACH), and Store Capital Corporation (NYSE:STOR). All of these stocks’ market caps are similar to AAXN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTCH 37 837456 15
DCI 27 226099 7
ST 33 1073165 7
SC 20 561451 0
BG 37 620306 -2
ACH 6 3451 4
STOR 16 689832 -9
Average 25.1 573109 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $573 million. That figure was $609 million in AAXN’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Axon Enterprise, Inc. (NASDAQ:AAXN) is more popular among hedge funds. Our overall hedge fund sentiment score for AAXN is 90. 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 AAXN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AAXN were disappointed as the stock returned -12.7% 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.