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 The L.S. Starrett Company (NYSE:SCX).
Hedge fund interest in The L.S. Starrett Company (NYSE:SCX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SCX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Harvest Capital Credit Corporation (NASDAQ:HCAP), Rubicon Technology, Inc. (NASDAQ:RBCN), and AzurRx BioPharma, Inc. (NASDAQ:AZRX) to gather more data points. Video: Watch our video about the top 5 most popular hedge fund stocks.
Today there are several formulas shareholders have at their disposal to size up their holdings. Two of the most underrated formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best hedge fund managers can beat their index-focused peers by a very impressive amount (see the details here).
Fred DiSanto of Ancora Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. With all of this in mind let's take a look at the key hedge fund action regarding The L.S. Starrett Company (NYSE:SCX).
How have hedgies been trading The L.S. Starrett Company (NYSE:SCX)?
At third quarter's end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 4 hedge funds held shares or bullish call options in SCX a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Renaissance Technologies has the most valuable position in The L.S. Starrett Company (NYSE:SCX), worth close to $1.5 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is GAMCO Investors, led by Mario Gabelli, holding a $1.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of David P. Cohen's Minerva Advisors, Frederick DiSanto's Ancora Advisors and . In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to The L.S. Starrett Company (NYSE:SCX), around 0.13% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to SCX.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as The L.S. Starrett Company (NYSE:SCX) but similarly valued. We will take a look at Harvest Capital Credit Corporation (NASDAQ:HCAP), Rubicon Technology, Inc. (NASDAQ:RBCN), AzurRx BioPharma, Inc. (NASDAQ:AZRX), Westell Technologies Inc. (NASDAQ:WSTL), CVD Equipment Corporation (NASDAQ:CVV), Castor Maritime Inc. (NASDAQ:CTRM), and Capital Senior Living Corporation (NYSE:CSU). This group of stocks' market values are closest to SCX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HCAP,1,254,1 RBCN,3,3657,-1 AZRX,1,21,-1 WSTL,1,1229,-1 CVV,2,428,0 CTRM,2,270,-2 CSU,4,5176,-1 Average,2,1576,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $3 million in SCX's case. Capital Senior Living Corporation (NYSE:CSU) is the most popular stock in this table. On the other hand Harvest Capital Credit Corporation (NASDAQ:HCAP) is the least popular one with only 1 bullish hedge fund positions. The L.S. Starrett Company (NYSE:SCX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SCX is 75. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on SCX as the stock returned 32.5% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.