Do Hedge Funds Love Liquidity Services, Inc. (LQDT)?

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Liquidity Services, Inc. (NASDAQ:LQDT) has experienced a decrease in hedge fund interest in recent months. There were 12 hedge funds in our database with LQDT positions at the end of the previous quarter. At the end of this article we will also compare LQDT to other stocks including Heidrick & Struggles International, Inc. (NASDAQ:HSII), Rockwell Medical Inc (NASDAQ:RMTI), and Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

oneinchpunch/Shutterstock.com

Keeping this in mind, we’re going to go over the fresh action encompassing Liquidity Services, Inc. (NASDAQ:LQDT).

How have hedgies been trading Liquidity Services, Inc. (NASDAQ:LQDT)?

Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LQDT over the last 5 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the biggest position in Liquidity Services, Inc. (NASDAQ:LQDT), worth close to $14.7 million, corresponding to less than 0.1% of its total 13F portfolio. Coming in second is D. E. Shaw’s D E Shaw, with a $8.8 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since Liquidity Services, Inc. (NASDAQ:LQDT) has sustained a falling interest from the aggregate hedge fund industry, we can see that there was a specific group of funds that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Jim Roumell’s Roumell Asset Management sold off the biggest stake of all the investors followed by Insider Monkey, worth about $4.5 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its stock, about $0.5 million worth.

Let’s also examine hedge fund activity in other stocks similar to Liquidity Services, Inc. (NASDAQ:LQDT). These stocks are Heidrick & Struggles International, Inc. (NASDAQ:HSII), Rockwell Medical Inc (NASDAQ:RMTI), Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), and Akebia Therapeutics Inc (NASDAQ:AKBA). This group of stocks’ market caps match LQDT’s market cap.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $32 million in LQDT’s case. Heidrick & Struggles International, Inc. (NASDAQ:HSII) is the most popular stock in this table. On the other hand Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) is the least popular one with only 3 bullish hedge fund positions. Liquidity Services, Inc. (NASDAQ:LQDT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HSII might be a better candidate to consider taking a long position in.

Disclosure: None