Should You Buy Arrow Electronics, Inc. (ARW)?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Arrow Electronics, Inc. (NYSE:ARW).

Arrow Electronics, Inc. (NYSE:ARW) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. At the end of this article we will also compare ARW to other stocks including PerkinElmer, Inc. (NYSE:PKI), Amtrust Financial Services, Inc. (NASDAQ:AFSI), and Sirona Dental Systems, Inc. (NASDAQ:SIRO) to get a better sense of its popularity.

To most shareholders, hedge funds are perceived as slow, old financial vehicles of yesteryear. While there are over 8000 funds in operation at the moment, We hone in on the moguls of this club, around 700 funds. It is estimated that this group of investors control most of the hedge fund industry’s total asset base, and by tracking their first-class stock picks, Insider Monkey has deciphered several investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Keeping this in mind, let’s take a look at the key action surrounding Arrow Electronics, Inc. (NYSE:ARW).

How have hedgies been trading Arrow Electronics, Inc. (NYSE:ARW)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a rise of 23% from the second quarter. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, holds the number one position in Arrow Electronics, Inc. (NYSE:ARW). The fund has a $74.1 million position in the stock, comprising 0.6% of its 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $68.2 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism contain Cliff Asness’s AQR Capital Management, Thomas E. Claugus’s GMT Capital and Israel Englander’s Millennium Management.

Now, some big names have been driving this bullishness. PDT Partners, managed by Peter Muller, created the biggest position in Arrow Electronics, Inc. (NYSE:ARW). PDT Partners had $2.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated an $1 million position during the quarter. The other funds with new positions in the stock are Ray Dalio’s Bridgewater Associates, John Overdeck and David Siegel’s Two Sigma Advisors, and Ken Fisher’s Fisher Asset Management.

Let’s check out hedge fund activity in other stocks similar to Arrow Electronics, Inc. (NYSE:ARW). These stocks are PerkinElmer, Inc. (NYSE:PKI), Amtrust Financial Services, Inc. (NASDAQ:AFSI), Sirona Dental Systems, Inc. (NASDAQ:SIRO), and ITC Holdings Corp. (NYSE:ITC). This group of stocks’ market caps resemble ARW’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $406 million. That figure was $317 million in ARW’s case. PerkinElmer, Inc. (NYSE:PKI) is the most popular stock in this table. On the other hand ITC Holdings Corp. (NYSE:ITC) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Arrow Electronics, Inc. (NYSE:ARW) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.