FARO Technologies, Inc. (FARO): Are Hedge Funds Right About This Stock?: Analogic Corporation (ALOG), MTS Systems Corporation (MTSC)

Is FARO Technologies, Inc. (NASDAQ:FARO) a marvelous investment right now? Hedge funds are turning bullish. The number of bullish hedge fund positions increased by 1 recently.

To most stock holders, hedge funds are assumed to be worthless, outdated investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open at present, we at Insider Monkey choose to focus on the masters of this club, about 450 funds. Most estimates calculate that this group controls the majority of the smart money’s total capital, and by paying attention to their best picks, we have spotted a number of investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Equally as important, bullish insider trading sentiment is a second way to break down the world of equities. As the old adage goes: there are many reasons for an insider to downsize shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Various empirical studies have demonstrated the valuable potential of this tactic if investors know what to do (learn more here).

Now, it’s important to take a peek at the latest action regarding FARO Technologies, Inc. (NASDAQ:FARO).

How are hedge funds trading FARO Technologies, Inc. (NASDAQ:FARO)?

At the end of the fourth quarter, a total of 8 of the hedge funds we track were bullish in this stock, a change of 14% from the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully.

When looking at the hedgies we track, Royce & Associates, managed by Chuck Royce, holds the most valuable position in FARO Technologies, Inc. (NASDAQ:FARO). Royce & Associates has a $53 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, which held a $6 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and Joel Greenblatt’s Gotham Asset Management.

As aggregate interest increased, some big names have jumped into FARO Technologies, Inc. (NASDAQ:FARO) headfirst. Millennium Management, managed by Israel Englander, created the largest position in FARO Technologies, Inc. (NASDAQ:FARO). Millennium Management had 2 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also made a $1 million investment in the stock during the quarter.

Insider trading activity in FARO Technologies, Inc. (NASDAQ:FARO)

Bullish insider trading is best served when the company we’re looking at has seen transactions within the past six months. Over the latest 180-day time period, FARO Technologies, Inc. (NASDAQ:FARO) has seen zero unique insiders buying, and 3 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to FARO Technologies, Inc. (NASDAQ:FARO). These stocks are Analogic Corporation (NASDAQ:ALOG), MTS Systems Corporation (NASDAQ:MTSC), Measurement Specialties, Inc. (NASDAQ:MEAS), Badger Meter, Inc. (NYSE:BMI), and Rofin-Sinar Technologies (NASDAQ:RSTI). All of these stocks are in the scientific & technical instruments industry and their market caps resemble FARO’s market cap.

With the returns demonstrated by the aforementioned studies, retail investors should always monitor hedge fund and insider trading activity, and FARO Technologies, Inc. (NASDAQ:FARO) is an important part of this process.

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