Does LeapFrog Enterprises, Inc. (LF) represent a good investment?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow over 700 of the best-performing investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is LeapFrog Enterprises, Inc. (NYSE:LF), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

LeapFrog Enterprises, Inc. (NYSE:LF) was in 12 hedge funds’ portfolios at the end of September. LF investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. There were 17 hedge funds in our database with LF holdings at the end of the previous quarter. 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 Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), SFX Entertainment Inc (NASDAQ:SFXE), and Orion Energy Systems, Inc. (NYSEAMEX:OESX) to gather more data points.

Today there are plenty of gauges investors have at their disposal to appraise stocks. Two of the less utilized gauges are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can beat the S&P 500 by a significant amount (see the details here).

With all of this in mind, let’s take a look at the recent action surrounding LeapFrog Enterprises, Inc. (NYSE:LF).

Hedge fund activity in LeapFrog Enterprises, Inc. (NYSE:LF)

At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the previous quarter. With the smart money’s capital changing hands, there exist a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in LeapFrog Enterprises, Inc. (NYSE:LF). D E Shaw has a $1.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, managed by Jim Simons, which holds a $1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Michael Johnston’s Steelhead Partners, David Kowitz and Sheldon Kasowitz’s Indus Capital and Chuck Royce’s Royce & Associates.

Judging by the fact that LeapFrog Enterprises, Inc. (NYSE:LF) has experienced falling interest from the entirety of the hedge funds we track, we can see that there exist a select few funds that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Cliff Asness’s AQR Capital Management dropped the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $0.9 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold of LMR Partners was right behind this move, as the fund said goodbye to about $0.1 million worth. These transactions are interesting, as total hedge fund interest was cut by 5 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to LeapFrog Enterprises, Inc. (NYSE:LF). We will take a look at Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), SFX Entertainment Inc (NASDAQ:SFXE), Orion Energy Systems, Inc. (NYSEAMEX:OESX), and Aeropostale, Inc. (NYSE:ARO). This group of stocks’ market values resemble LF’s market value.

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 $8 million. That figure was $5 million in LF’s case. The least popular stock in the table is Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), and the most popular one is SFX Entertainment Inc (NASDAQ:SFXE). Even though it is not the most popular stock among the ones in this group, LeapFrog Enterprises, Inc. (NYSE:LF) has succeeded in attracting attention from investors. Although this may indicate a good potential, it might be better to look into stocks that hedge funds are collectively most bullish on, such as SFX Entertainment Inc (NASDAQ:SFXE) that might represent a better candidate to consider a long position.