With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Avery Dennison Corporation (NYSE:AVY).
Is AVY a good stock to buy now? Avery Dennison Corporation (NYSE:AVY) was in 16 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 30. AVY shareholders have witnessed a decrease in hedge fund interest lately. There were 29 hedge funds in our database with AVY holdings at the end of June. Our calculations also showed that AVY 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.
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. Now let’s take a look at the recent hedge fund action encompassing Avery Dennison Corporation (NYSE:AVY).
Do Hedge Funds Think AVY Is A Good Stock To Buy Now?
At third quarter’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -45% from the second quarter of 2020. On the other hand, there were a total of 25 hedge funds with a bullish position in AVY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Point72 Asset Management held the most valuable stake in Avery Dennison Corporation (NYSE:AVY), which was worth $38.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $30.1 million worth of shares. Appian Way Asset Management, Adage Capital Management, and Bailard Inc 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 Appian Way Asset Management allocated the biggest weight to Avery Dennison Corporation (NYSE:AVY), around 5.77% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, earmarking 1.94 percent of its 13F equity portfolio to AVY.
Because Avery Dennison Corporation (NYSE:AVY) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Greg Poole’s Echo Street Capital Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $14.4 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also dumped its stock, about $7.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 13 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Avery Dennison Corporation (NYSE:AVY). We will take a look at NICE Ltd (NASDAQ:NICE), Omnicom Group Inc. (NYSE:OMC), Ubiquiti Inc. (NYSE:UI), Advance Auto Parts, Inc. (NYSE:AAP), Halliburton Company (NYSE:HAL), Eastman Chemical Company (NYSE:EMN), and Vipshop Holdings Limited (NYSE:VIPS). This group of stocks’ market valuations resemble AVY’s market valuation.
|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 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $598 million. That figure was $118 million in AVY’s case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table. On the other hand Ubiquiti Inc. (NYSE:UI) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Avery Dennison Corporation (NYSE:AVY) is even less popular than UI. Our overall hedge fund sentiment score for AVY is 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. Hedge funds clearly dropped the ball on AVY as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on AVY as the stock returned 16.9% since Q3 (through December 14th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.