Is AVID A Good Stock To Buy Now?

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 third 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 Avid Technology, Inc. (NASDAQ:AVID) based on that data.

Is AVID a good stock to buy now? Avid Technology, Inc. (NASDAQ:AVID) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. Avid Technology, Inc. (NASDAQ:AVID) was in 19 hedge funds’ portfolios at the end of September. The all time high for this statistic is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AVID isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let’s review the key hedge fund action surrounding Avid Technology, Inc. (NASDAQ:AVID).

Do Hedge Funds Think AVID Is A Good Stock To Buy Now?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in AVID 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.

The largest stake in Avid Technology, Inc. (NASDAQ:AVID) was held by Impactive Capital, which reported holding $58.9 million worth of stock at the end of September. It was followed by Royce & Associates with a $14.8 million position. Other investors bullish on the company included Cove Street Capital, Miller Value Partners, and Voss Capital. In terms of the portfolio weights assigned to each position Impactive Capital allocated the biggest weight to Avid Technology, Inc. (NASDAQ:AVID), around 18.57% of its 13F portfolio. Harbert Management is also relatively very bullish on the stock, setting aside 4.02 percent of its 13F equity portfolio to AVID.

As industrywide interest jumped, some big names have been driving this bullishness. Voss Capital, managed by Travis Cocke, assembled the most valuable position in Avid Technology, Inc. (NASDAQ:AVID). Voss Capital had $6.1 million invested in the company at the end of the quarter. Roger Ibbotson’s Zebra Capital Management also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Peter Algert’s Algert Global and David Harding’s Winton Capital Management.

Let’s now review hedge fund activity in other stocks similar to Avid Technology, Inc. (NASDAQ:AVID). We will take a look at VirnetX Holding Corporation (NYSE:VHC), Resources Connection, Inc. (NASDAQ:RGP), TransMedics Group, Inc. (NASDAQ:TMDX), Dime Community Bancshares, Inc. (NASDAQ:DCOM), Thermon Group Holdings, Inc. (NYSE:THR), Kamada Ltd (NASDAQ:KMDA), and Valhi, Inc. (NYSE:VHI). This group of stocks’ market caps match AVID’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VHC 5 10446 -1
RGP 15 46723 2
TMDX 7 58282 1
DCOM 11 38220 -2
THR 14 24686 2
KMDA 6 13143 4
VHI 3 3064 -1
Average 8.7 27795 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.7 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $124 million in AVID’s case. Resources Connection, Inc. (NASDAQ:RGP) is the most popular stock in this table. On the other hand Valhi, Inc. (NYSE:VHI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Avid Technology, Inc. (NASDAQ:AVID) is more popular among hedge funds. Our overall hedge fund sentiment score for AVID is 87. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on AVID as the stock returned 62.6% since the end of September (through 12/14) 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.

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