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Were Hedge Funds Right About Dumping Aspen Technology, Inc. (AZPN)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Aspen Technology, Inc. (NASDAQ:AZPN) and determine whether hedge funds had an edge regarding this stock.

Aspen Technology, Inc. (NASDAQ:AZPN) has seen a decrease in enthusiasm from smart money lately. Our calculations also showed that AZPN 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.

In the financial world there are tons of gauges stock market investors use to evaluate stocks. A couple of the most underrated gauges are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top money managers can beat the broader indices by a solid amount (see the details here).

Steven Cohen

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 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a glance at the latest hedge fund action surrounding Aspen Technology, Inc. (NASDAQ:AZPN).

How have hedgies been trading Aspen Technology, Inc. (NASDAQ:AZPN)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -46% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in AZPN a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is AZPN A Good Stock To Buy?

More specifically, Alkeon Capital Management was the largest shareholder of Aspen Technology, Inc. (NASDAQ:AZPN), with a stake worth $165.1 million reported as of the end of September. Trailing Alkeon Capital Management was BlueSpruce Investments, which amassed a stake valued at $151.7 million. Two Creeks Capital Management, Fisher Asset Management, and Renaissance Technologies 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 Two Creeks Capital Management allocated the biggest weight to Aspen Technology, Inc. (NASDAQ:AZPN), around 10.25% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, setting aside 5.15 percent of its 13F equity portfolio to AZPN.

Seeing as Aspen Technology, Inc. (NASDAQ:AZPN) has faced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of money managers who sold off their positions entirely by the end of the first quarter. Interestingly, Steve Cohen’s Point72 Asset Management said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $49.7 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $47.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 17 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Aspen Technology, Inc. (NASDAQ:AZPN) but similarly valued. We will take a look at Regency Centers Corp (NYSE:REG), AptarGroup, Inc. (NYSE:ATR), PagSeguro Digital Ltd. (NYSE:PAGS), and Eastman Chemical Company (NYSE:EMN). This group of stocks’ market values resemble AZPN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REG 18 167065 2
ATR 20 156311 -5
PAGS 20 490881 -1
EMN 29 233593 -3
Average 21.75 261963 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $262 million. That figure was $737 million in AZPN’s case. Eastman Chemical Company (NYSE:EMN) is the most popular stock in this table. On the other hand Regency Centers Corp (NYSE:REG) is the least popular one with only 18 bullish hedge fund positions. Aspen Technology, Inc. (NASDAQ:AZPN) 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 AZPN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AZPN investors were disappointed as the stock returned 2.4% 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.