Is Advanced Energy Industries, Inc. (AEIS) A Good Stock To Buy?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Advanced Energy Industries, Inc. (NASDAQ:AEIS) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Advanced Energy Industries, Inc. (NASDAQ:AEIS) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. AEIS investors should be aware of an increase in support from the world’s most elite money managers of late. There were 14 hedge funds in our database with AEIS holdings at the end of March. Our calculations also showed that AEIS 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 21st century investor’s toolkit there are several metrics investors can use to analyze their stock investments. A duo of the most useful metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best investment managers can beat their index-focused peers by a solid margin (see the details here).

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

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. We are also checking out this lithium company which could benefit from the electric car adoption. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Advanced Energy Industries, Inc. (NASDAQ:AEIS).

What does smart money think about Advanced Energy Industries, Inc. (NASDAQ:AEIS)?

Heading into the third quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AEIS over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is AEIS A Good Stock To Buy?

The largest stake in Advanced Energy Industries, Inc. (NASDAQ:AEIS) was held by Royce & Associates, which reported holding $20.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $14 million position. Other investors bullish on the company included Fisher Asset Management, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Shellback Capital allocated the biggest weight to Advanced Energy Industries, Inc. (NASDAQ:AEIS), around 0.53% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to AEIS.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the most outsized position in Advanced Energy Industries, Inc. (NASDAQ:AEIS). Millennium Management had $5.7 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also made a $5.1 million investment in the stock during the quarter. The following funds were also among the new AEIS investors: Michael Gelband’s ExodusPoint Capital, Mika Toikka’s AlphaCrest Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks similar to Advanced Energy Industries, Inc. (NASDAQ:AEIS). These stocks are Acushnet Holdings Corp. (NYSE:GOLF), Webster Financial Corporation (NYSE:WBS), Pluralsight, Inc. (NASDAQ:PS), Papa John’s International, Inc. (NASDAQ:PZZA), Sanderson Farms, Inc. (NASDAQ:SAFM), Rapid7 Inc (NASDAQ:RPD), and Ping Identity Holding Corp. (NYSE:PING). This group of stocks’ market values resemble AEIS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GOLF 11 31850 -1
WBS 30 245581 -3
PS 27 233743 9
PZZA 34 404173 5
SAFM 22 205175 5
RPD 14 64535 -2
PING 15 73422 4
Average 21.9 179783 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $81 million in AEIS’s case. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 11 bullish hedge fund positions. Advanced Energy Industries, Inc. (NASDAQ:AEIS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AEIS is 52.7. 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 negative signal and 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately AEIS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AEIS investors were disappointed as the stock returned -7.2% in the third 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.