Fusion-IO, Inc. (FIO): One Epic Indicator You Probably Missed

Is Fusion-IO, Inc. (NYSE:FIO) undervalued? The best stock pickers are getting less optimistic. The number of long hedge fund positions stayed the same which is a slightly negative development in our experience.

In the eyes of most market participants, hedge funds are perceived as worthless, outdated financial vehicles of the past. While there are greater than 8000 funds in operation at the moment, we at Insider Monkey hone in on the upper echelon of this club, around 450 funds. Most estimates calculate that this group controls the majority of the hedge fund industry’s total asset base, and by paying attention to their best investments, we have brought to light a number of investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year 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 (see the details here).

Just as integral, positive insider trading activity is a second way to parse down the stock market universe. Just as you’d expect, there are a variety of incentives for a corporate insider to drop shares of his or her company, but just one, very obvious reason why they would behave bullishly. Many empirical studies have demonstrated the valuable potential of this tactic if shareholders understand where to look (learn more here).

Now, we’re going to take a gander at the recent action encompassing Fusion-IO, Inc. (NYSE:FIO).

Hedge fund activity in Fusion-IO, Inc. (NYSE:FIO)

At year’s end, a total of 20 of the hedge funds we track were bullish in this stock, a change of 0% from the third quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably.

When looking at the hedgies we track, Columbus Circle Investors, managed by Donald Chiboucis, holds the most valuable position in Fusion-IO, Inc. (NYSE:FIO). Columbus Circle Investors has a $66.4 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is David Tepper of Appaloosa Management LP, with a $32.2 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining hedge funds with similar optimism include Stuart Peterson’s Artis Capital Management, Drew Cupps’s Cupps Capital Management and Steven Cohen’s SAC Capital Advisors.

Since Fusion-IO, Inc. (NYSE:FIO) has witnessed declining sentiment from hedge fund managers, logic holds that there were a few hedge funds who sold off their entire stakes in Q4. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the largest position of the “upper crust” of funds we key on, totaling close to $11.2 million in stock.. Eric Bannasch’s fund, Cadian Capital, also sold off its stock, about $10.4 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

How are insiders trading Fusion-IO, Inc. (NYSE:FIO)?

Insider purchases made by high-level executives is best served when the company we’re looking at has seen transactions within the past 180 days. Over the last half-year time period, Fusion-IO, Inc. (NYSE:FIO) has experienced zero unique insiders buying, and 10 insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to Fusion-IO, Inc. (NYSE:FIO). These stocks are Datalink Corporation (NASDAQ:DTLK), Xyratex Ltd. (NASDAQ:XRTX), Quantum Corp (NYSE:QTM), Emulex Corporation (NYSE:ELX), and Brocade Communications Systems, Inc. (NASDAQ:BRCD). All of these stocks are in the data storage devices industry and their market caps match FIO’s market cap.