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Is Avista Corp (AVA) Going to Burn These Hedge Funds?

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Avista Corp (NYSE:AVA) from the perspective of those successful funds.

Is Avista Corp (NYSE:AVA) a healthy stock for your portfolio? The smart money is altogether becoming less hopeful. The number of long hedge fund bets fell by 3 recently. AVA was in 9 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with AVA holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as The Medicines Company (NASDAQ:MDCO), SM Energy Co. (NYSE:SM), and Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) to gather more data points.

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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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With all of this in mind, we’re going to analyze the key action surrounding Avista Corp (NYSE:AVA).

What have hedge funds been doing with Avista Corp (NYSE:AVA)?

Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the second quarter of 2016. On the other hand, there were a total of 7 hedge funds with a bullish position in AVA at the beginning of this year. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, led by Ken Fisher, holds the number one position in Avista Corp (NYSE:AVA). Fisher Asset Management has a $31.1 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Cliff Asness of AQR Capital Management, with a $10.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish encompass John Overdeck and David Siegel’s Two Sigma Advisors, Ken Griffin’s Citadel Investment Group and Millennium Management, one of the 10 largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because Avista Corp (NYSE:AVA) has gone through a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their full holdings last quarter. Interestingly, Glenn Russell Dubin’s Highbridge Capital Management said goodbye to the biggest stake of the 700 funds followed by Insider Monkey, comprising about $2.9 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also said goodbye to its stock, about $1.1 million worth.

Let’s check out hedge fund activity in other stocks similar to Avista Corp (NYSE:AVA). We will take a look at The Medicines Company (NASDAQ:MDCO), SM Energy Co. (NYSE:SM), Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), and Charles River Laboratories (NYSE:CRL). This group of stocks’ market values match AVA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MDCO 27 584714 1
SM 28 322360 8
ARIA 29 563755 2
CRL 27 594201 0

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $516 million. That figure was $56 million in AVA’s case. Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) is the most popular stock in this table. On the other hand The Medicines Company (NASDAQ:MDCO) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Avista Corp (NYSE:AVA) is even less popular than MDCO. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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