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Volatility Presents Opportunities In These 5 Hedge Fund Stocks

2019 will be a year of uncertainties. The US-China trade war, which seemed to be behind us following the Buenos Aires G20 verbal agreement between presidents, now seem to dissipate, and even escalate following the arrest of a senior Huawei manager in Canada. On top of those, additional concerns are growing as Russia and Ukraine might embark on another round of hostilities, the Turkish lira becoming ever less stable, Qatar leaving OPEC, and other factors around the world.

On that background, 2019 seems to be a great year for day traders. Day traders live of volatility. A stock that would increase every day by 0.1% would make about 20% upside per year, but would not be interesting for day traders. “Day traders’ oxygen is extreme movements, either upwards or downwards, during the trading day. So while someone like Warren Buffett prefers Apple over Tesla, because it fits his style as an investor, I would prefer Elon Musk’s company – because as a day trader Tesla gives me so much more leeway and earnings potential – because of Tesla’s volatility”, tells us Meir Barak, founder of day trading education leader, Tradenet. You can watch his Youtube videos here.

Will Tesla Motors Inc (TSLA) CEO make Ford Motor Company (F) CEO Jealous with this Payout?

In this article we are going to take a look at the 30 most volatile S&P 500 Index constituents over the last 30 days and determine which ones are most crowded by hedge funds. Some hedge funds might be facing large investor redemption requests in the fourth quarter and may be forced to start liquidating their holdings. This may lead to some predictable short-term price movements for day traders and present a buying opportunity at discounted prices for long-term investors. Here are the 30 most stocks

Company Ticker Std. Dev (Daily Return) No. of HFs
Pacific Gas & Electric Co. PCG  0.077459603 60
Red Hat Inc. RHT 0.061072742 21
Advanced Micro Devices AMD 0.054299054 28
NVIDIA Corporation NVDA 0.046977279 56
Under Armour Inc. UA 0.044395534 28
Align Technology Inc. ALGN 0.041760142 37
ABIOMED Inc. ABMD 0.041636758 22
Under Armour Inc. UAA 0.0407867 28
Nektar Therapeutics NKTR 0.039767773 27
Coty Inc. COTY 0.039559227 24
Wynn Resorts Limited WYNN 0.038800635 43
Newfield Exploration Company NFX 0.037763102 39
Edison International EIX 0.036048605 25
Mohawk Industries Inc. MHK 0.036034964 49
Western Digital Corporation WDC 0.035426694 33
Netflix Inc. NFLX 0.034807386 84
L Brands Inc. LB 0.034625905 27
Take-Two Interactive Software Inc. TTWO 0.03461987 58
IPG Photonics Corporation IPGP 0.034224936 16
Twitter Inc. TWTR 0.034140621 42
United Rentals Inc. URI 0.033937192 48
TripAdvisor Inc. TRIP 0.032688949 26
Newell Brands Inc. NWL 0.032565925 36
General Electric Company GE 0.032426698 46
Activision Blizzard Inc ATVI 0.032254729 74
American Airlines Group Inc. AAL 0.032041571 39
Amazon.com Inc. AMZN 0.031799286 150
Salesforce.com Inc CRM 0.031761367 86
Autodesk Inc. ADSK 0.031539591 66
DXC Technology Company DXC 0.031419439 50

View table here if you experience formatting issues.

At the end of the third quarter, a total of 150 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. By comparison, 136 hedge funds held shares or bullish call options in Amazon.com Inc (NASDAQ:AMZN) heading into this year. Amazon.com Inc (NASDAQ:AMZN) was also the third most popular hedge fund stock at the end of September (see the list of 30 most popular stocks among hedge funds)  The daily standard deviation in AMZN’s stock price over the last 90 days was 3.2%. Amazon was trading at $1990 three months ago, vs. $1640 right now.

Salesforce.com Inc (NASDAQ:CRM) ranks second in our list with also a daily standard deviation of 3.2% over the last 90 days. At the end of the third quarter, a total of 86 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 72 hedge funds with a bullish position in Salesforce.com Inc (NASDAQ:CRM) at the beginning of this year. CRM shares were trading as high as $161 in September, vs. its current price of $137.

Netflix, Inc. (NASDAQ:NFLX) ranks third with a daily standard deviation of 3.5%. At Q3’s end, a total of 84 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from one quarter earlier. On the other hand, there were a total of 66 hedge funds with a bullish position in Netflix, Inc. (NASDAQ:NFLX) at the end of June. Some of these hedge funds were probably already dumping their NFLX holdings as the stock plunged from $381 on October 1st to $270 today.

Activision Blizzard, Inc (NASDAQ:ATVI) ranks fourth in our list with a daily standard deviation of 3.2%. Heading into the fourth quarter of 2018, a total of 74 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. Activision Blizzard Inc. shares also took a dive from $83 at the end of September to $48 today.

Autodesk, Inc. (NASDAQ:ADSK) ranks fifth with a daily standard deviation of 3.2%. At Q3’s end, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. Autodesk, Inc. (NASDAQ:ADSK) shares declined from $156 at the end of September to $135 today.

We don’t want to give the wrong impression that hedge funds aren’t talented stock pickers. There are good as well as bad hedge fund managers and our proprietary methodologies try to identify the best and worst hedge fund managers and their best and worst stock picks. For example our latest list of best hedge fund stocks lost only 1.5% since November 15th vs. a loss of 3.3% for the S&P 500 ETF (SPY). Our latest list of the worst hedge fund stocks (which we recommended our subscribers to short) lost an average of 8.5% during the same period. So, our subscribers were able to beat the S&P 500 Index both on the long and short sides of their portfolios (read the details here).

Volatility brings lots of opportunities and if you know what you are doing you can enhance your returns by exploiting the predictable moves of the elephants in the stock market.

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

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