Were Hedge Funds Right About Exponent, Inc. (EXPO)?

·6 min read

In this article you are going to find out whether hedge funds think Exponent, Inc. (NASDAQ:EXPO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Exponent, Inc. (NASDAQ:EXPO) has seen an increase in enthusiasm from smart money in recent months. Exponent, Inc. (NASDAQ:EXPO) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 25. Our calculations also showed that EXPO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Andrew Sandler of Sandler Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind we're going to take a look at the fresh hedge fund action regarding Exponent, Inc. (NASDAQ:EXPO).

Do Hedge Funds Think EXPO Is A Good Stock To Buy Now?

At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXPO over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Sandler Capital Management held the most valuable stake in Exponent, Inc. (NASDAQ:EXPO), which was worth $15.5 million at the end of the fourth quarter. On the second spot was Royce & Associates which amassed $9.4 million worth of shares. Montanaro Asset Management, Millennium Management, and GLG Partners 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 Sandler Capital Management allocated the biggest weight to Exponent, Inc. (NASDAQ:EXPO), around 1.32% of its 13F portfolio. Montanaro Asset Management is also relatively very bullish on the stock, earmarking 1.09 percent of its 13F equity portfolio to EXPO.

As industrywide interest jumped, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, initiated the most outsized position in Exponent, Inc. (NASDAQ:EXPO). Millennium Management had $7.2 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0.5 million investment in the stock during the quarter. The other funds with brand new EXPO positions are Donald Sussman's Paloma Partners, Mika Toikka's AlphaCrest Capital Management, and Ken Griffin's Citadel Investment Group.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Exponent, Inc. (NASDAQ:EXPO) but similarly valued. These stocks are IDACORP Inc (NYSE:IDA), Amyris Inc (NASDAQ:AMRS), RLI Corp. (NYSE:RLI), Flowers Foods, Inc. (NYSE:FLO), MSC Industrial Direct Co Inc (NYSE:MSM), Macy's, Inc. (NYSE:M), and Grand Canyon Education Inc (NASDAQ:LOPE). All of these stocks' market caps match EXPO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IDA,17,174429,3 AMRS,14,641287,-1 RLI,14,189969,-1 FLO,26,301870,-1 MSM,20,393613,2 M,31,790325,-3 LOPE,24,195853,-2 Average,20.9,383907,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $384 million. That figure was $63 million in EXPO's case. Macy's, Inc. (NYSE:M) is the most popular stock in this table. On the other hand Amyris Inc (NASDAQ:AMRS) is the least popular one with only 14 bullish hedge fund positions. Exponent, Inc. (NASDAQ:EXPO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EXPO is 36.2. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately EXPO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); EXPO investors were disappointed as the stock returned -2.1% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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