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 Encore Wire Corporation (NASDAQ:WIRE).
Encore Wire Corporation (NASDAQ:WIRE) was in 21 hedge funds’ portfolios at the end of September. The all time high for this statistic is 22. WIRE has seen an increase in activity from the world’s largest hedge funds in recent months. There were 20 hedge funds in our database with WIRE positions at the end of the second quarter. Our calculations also showed that WIRE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Chuck Royce of Royce & Associates
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Encore Wire Corporation (NASDAQ:WIRE).
Do Hedge Funds Think WIRE Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WIRE over the last 25 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Encore Wire Corporation (NASDAQ:WIRE), with a stake worth $30.6 million reported as of the end of September. Trailing Royce & Associates was Arrowstreet Capital, which amassed a stake valued at $22.9 million. Millennium Management, Skylands Capital, and Citadel Investment Group 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 Skylands Capital allocated the biggest weight to Encore Wire Corporation (NASDAQ:WIRE), around 1.4% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, designating 1.21 percent of its 13F equity portfolio to WIRE.
Now, key money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most valuable position in Encore Wire Corporation (NASDAQ:WIRE). Marshall Wace LLP had $1.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Bruce Kovner’s Caxton Associates LP, Louis Navellier’s Navellier & Associates, and Greg Eisner’s Engineers Gate Manager.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Encore Wire Corporation (NASDAQ:WIRE) but similarly valued. These stocks are KAR Auction Services Inc (NYSE:KAR), Veritex Holdings Inc (NASDAQ:VBTX), NMI Holdings Inc (NASDAQ:NMIH), B&G Foods, Inc. (NYSE:BGS), Holly Energy Partners, L.P. (NYSE:HEP), PRA Group, Inc. (NASDAQ:PRAA), and PennyMac Mortgage Investment Trust (NYSE:PMT). This group of stocks’ market values resemble WIRE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KAR | 26 | 343456 | 3 |
| VBTX | 10 | 59199 | 1 |
| NMIH | 19 | 186090 | -2 |
| BGS | 13 | 17409 | 3 |
| HEP | 4 | 3357 | 1 |
| PRAA | 13 | 36971 | -2 |
| PMT | 10 | 7380 | -1 |
| Average | 13.6 | 93409 | 0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $116 million in WIRE’s case. KAR Auction Services Inc (NYSE:KAR) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 4 bullish hedge fund positions. Encore Wire Corporation (NASDAQ:WIRE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WIRE is 73.3. 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 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on WIRE as the stock returned 50.9% since the end of Q3 (through 12/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Encore Wire Corp (NASDAQ:WIRE)
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Disclosure: None. This article was originally published at Insider Monkey.
