Was The Smart Money Right About Loading Up On Sonos, Inc. (SONO)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Sonos, Inc. (NASDAQ:SONO).

Sonos, Inc. (NASDAQ:SONO) has seen an increase in hedge fund sentiment of late. Sonos, Inc. (NASDAQ:SONO) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SONO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

To most investors, hedge funds are perceived as worthless, old investment vehicles of years past. While there are more than 8000 funds with their doors open at present, We look at the upper echelon of this club, around 850 funds. These investment experts administer the lion’s share of the hedge fund industry’s total asset base, and by following their matchless picks, Insider Monkey has brought to light many investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded 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 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Sonos, Inc. (NASDAQ:SONO).

Hedge fund activity in Sonos, Inc. (NASDAQ:SONO)

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SONO over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Sonos, Inc. (NASDAQ:SONO) was held by Point72 Asset Management, which reported holding $49.1 million worth of stock at the end of June. It was followed by Trigran Investments with a $42.7 million position. Other investors bullish on the company included Hawk Ridge Management, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Greenspring Associates allocated the biggest weight to Sonos, Inc. (NASDAQ:SONO), around 15.87% of its 13F portfolio. Corriente Advisors is also relatively very bullish on the stock, earmarking 14.88 percent of its 13F equity portfolio to SONO.

As one would reasonably expect, some big names have jumped into Sonos, Inc. (NASDAQ:SONO) headfirst. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in Sonos, Inc. (NASDAQ:SONO). Point72 Asset Management had $49.1 million invested in the company at the end of the quarter. Mark Hart III’s Corriente Advisors also initiated a $23 million position during the quarter. The following funds were also among the new SONO investors: Gavin Baker’s Atreides Management, Kamyar Khajavi’s MIK Capital, and George McCabe’s Portolan Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Sonos, Inc. (NASDAQ:SONO). We will take a look at Mersana Therapeutics, Inc. (NASDAQ:MRSN), Walker & Dunlop Inc. (NYSE:WD), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), Spirit Airlines Incorporated (NASDAQ:SAVE), MakeMyTrip Limited (NASDAQ:MMYT), United Community Banks Inc (NASDAQ:UCBI), and Ambarella Inc (NASDAQ:AMBA). This group of stocks’ market values are closest to SONO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $328 million in SONO’s case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand MakeMyTrip Limited (NASDAQ:MMYT) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Sonos, Inc. (NASDAQ:SONO) is more popular among hedge funds. Our overall hedge fund sentiment score for SONO is 87. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately SONO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SONO were disappointed as the stock returned -0.2% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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