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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Avalara, Inc. (NYSE:AVLR).
Is AVLR a good stock to buy now? Prominent investors were becoming more confident. The number of long hedge fund bets advanced by 9 in recent months. Avalara, Inc. (NYSE:AVLR) was in 46 hedge funds’ portfolios at the end of September. The all time high for this statistic is 48. Our calculations also showed that AVLR 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.
If you’d ask most stock holders, hedge funds are seen as unimportant, outdated investment vehicles of years past. While there are over 8000 funds trading at present, Our experts choose to focus on the moguls of this club, around 850 funds. Most estimates calculate that this group of people command bulk of the smart money’s total asset base, and by tracking their matchless picks, Insider Monkey has revealed a number of investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
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Do Hedge Funds Think AVLR Is A Good Stock To Buy Now?
At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVLR over the last 21 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Alkeon Capital Management was the largest shareholder of Avalara, Inc. (NYSE:AVLR), with a stake worth $329.7 million reported as of the end of September. Trailing Alkeon Capital Management was Whale Rock Capital Management, which amassed a stake valued at $263.8 million. Tensile Capital, Renaissance Technologies, and SQN Investors 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 Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 23.04% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, setting aside 6 percent of its 13F equity portfolio to AVLR.
As one would reasonably expect, specific money managers have been driving this bullishness. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, established the most valuable position in Avalara, Inc. (NYSE:AVLR). Polar Capital had $53.5 million invested in the company at the end of the quarter. Bobby Yazdani and Babak Poushanchi’s Cota Capital also initiated a $20.6 million position during the quarter. The following funds were also among the new AVLR investors: Josh Resnick’s Jericho Capital Asset Management, Bryan Hinmon’s Motley Fool Asset Management, and Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks similar to Avalara, Inc. (NYSE:AVLR). These stocks are Avery Dennison Corporation (NYSE:AVY), NICE Ltd (NASDAQ:NICE), Omnicom Group Inc. (NYSE:OMC), Ubiquiti Inc. (NYSE:UI), Advance Auto Parts, Inc. (NYSE:AAP), Halliburton Company (NYSE:HAL), and Eastman Chemical Company (NYSE:EMN). All of these stocks’ market caps match AVLR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $577 million. That figure was $1330 million in AVLR’s case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Avalara, Inc. (NYSE:AVLR) is more popular among hedge funds. Our overall hedge fund sentiment score for AVLR is 88.8. 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 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on AVLR as the stock returned 33.5% since the end of September (through 12/8) 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.