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Is Broadcom Inc (AVGO) A Good Stock To Buy According To Hedge Funds?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Broadcom Inc (NASDAQ:AVGO) in this article.

Is Broadcom Inc (NASDAQ:AVGO) a marvelous investment today? Money managers are becoming more confident. The number of bullish hedge fund positions inched up by 2 in recent months. Our calculations also showed that AVGO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 41 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.

William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to check out the new hedge fund action regarding Broadcom Inc (NASDAQ:AVGO).

How are hedge funds trading Broadcom Inc (NASDAQ:AVGO)?

At the end of the fourth quarter, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AVGO over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, holds the number one position in Broadcom Inc (NASDAQ:AVGO). First Pacific Advisors LLC has a $462.8 million position in the stock, comprising 4.4% of its 13F portfolio. On First Pacific Advisors LLC’s heels is William von Mueffling of Cantillon Capital Management, with a $368 million position; 3.4% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish contain Andrew Wellington and Jeff Keswin’s Lyrical Asset Management, and Philippe Laffont’s Coatue Management. In terms of the portfolio weights assigned to each position Crescent Park Management allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 7.57% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, designating 7.32 percent of its 13F equity portfolio to AVGO.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Broadcom Inc (NASDAQ:AVGO) headfirst. GQG Partners, managed by Rajiv Jain, established the most outsized position in Broadcom Inc (NASDAQ:AVGO). GQG Partners had $135.6 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also initiated a $34.8 million position during the quarter. The following funds were also among the new AVGO investors: Howard Marks’s Oaktree Capital Management, David Tepper’s Appaloosa Management LP, and Qing Li’s Sciencast Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Broadcom Inc (NASDAQ:AVGO) but similarly valued. These stocks are Union Pacific Corporation (NYSE:UNP), ASML Holding N.V. (NASDAQ:ASML), Texas Instruments Incorporated (NASDAQ:TXN), and BHP Group (NYSE:BBL). This group of stocks’ market values match AVGO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNP 65 5313051 -4
ASML 22 1133071 7
TXN 50 2386926 -10
BBL 24 1238737 2
Average 40.25 2517946 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $2518 million. That figure was $2514 million in AVGO’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 22 bullish hedge fund positions. Broadcom Inc (NASDAQ:AVGO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Unfortunately AVGO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AVGO were disappointed as the stock returned -21.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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