Were Hedge Funds Right About Ditching Avery Dennison Corporation (AVY)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Avery Dennison Corporation (NYSE:AVY) based on that data and determine whether they were really smart about the stock.

Avery Dennison Corporation (NYSE:AVY) investors should be aware of a decrease in hedge fund sentiment recently. AVY was in 18 hedge funds’ portfolios at the end of March. There were 22 hedge funds in our database with AVY positions at the end of the previous quarter. Our calculations also showed that AVY isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s review the latest hedge fund action regarding Avery Dennison Corporation (NYSE:AVY).

How are hedge funds trading Avery Dennison Corporation (NYSE:AVY)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in AVY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AVY A Good Stock To Buy?

Among these funds, Millennium Management held the most valuable stake in Avery Dennison Corporation (NYSE:AVY), which was worth $25.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $23.8 million worth of shares. GLG Partners, Gotham Asset Management, and Two Sigma Advisors 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 Bailard Inc allocated the biggest weight to Avery Dennison Corporation (NYSE:AVY), around 0.34% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, setting aside 0.31 percent of its 13F equity portfolio to AVY.

Due to the fact that Avery Dennison Corporation (NYSE:AVY) has witnessed a decline in interest from the smart money, logic holds that there was a specific group of hedge funds who sold off their positions entirely last quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, worth close to $2.6 million in stock, and James Dondero’s Highland Capital Management was right behind this move, as the fund dropped about $1.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Avery Dennison Corporation (NYSE:AVY). We will take a look at Huazhu Group Limited (NASDAQ:HTHT), Molson Coors Beverage Company (NYSE:TAP), Concho Resources Inc. (NYSE:CXO), and Cna Financial Corporation (NYSE:CNA). This group of stocks’ market valuations match AVY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTHT 17 255677 -1
TAP 34 258923 3
CXO 31 492191 -8
CNA 12 51546 -3
Average 23.5 264584 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $265 million. That figure was $83 million in AVY’s case. Molson Coors Beverage Company (NYSE:TAP) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 12 bullish hedge fund positions. Avery Dennison Corporation (NYSE:AVY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately AVY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AVY investors were disappointed as the stock returned 14.3% since Q1 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.

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