Hedge Funds Are Dumping Sanmina Corporation (SANM)

In this article we will check out the progression of hedge fund sentiment towards Sanmina Corporation (NASDAQ:SANM) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Sanmina Corporation (NASDAQ:SANM) was in 15 hedge funds’ portfolios at the end of March. SANM has experienced a decrease in enthusiasm from smart money in recent months. There were 21 hedge funds in our database with SANM holdings at the end of the previous quarter. Our calculations also showed that SANM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the new hedge fund action regarding Sanmina Corporation (NASDAQ:SANM).

Hedge fund activity in Sanmina Corporation (NASDAQ:SANM)

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in SANM a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Sanmina Corporation (NASDAQ:SANM), which was worth $52.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $25.7 million worth of shares. D E Shaw, Royce & Associates, and AQR Capital Management 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 Invenomic Capital Management allocated the biggest weight to Sanmina Corporation (NASDAQ:SANM), around 0.88% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, setting aside 0.36 percent of its 13F equity portfolio to SANM.

Since Sanmina Corporation (NASDAQ:SANM) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few hedgies that decided to sell off their full holdings in the first quarter. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp dropped the largest investment of the 750 funds followed by Insider Monkey, comprising about $1.1 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $0.6 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to Sanmina Corporation (NASDAQ:SANM). These stocks are Viela Bio, Inc. (NASDAQ:VIE), Federated Hermes, Inc. (NYSE:FHI), Louisiana-Pacific Corporation (NYSE:LPX), and Telephone & Data Systems, Inc. (NYSE:TDS). This group of stocks’ market caps are closest to SANM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $147 million in SANM’s case. Federated Hermes, Inc. (NYSE:FHI) is the most popular stock in this table. On the other hand Viela Bio, Inc. (NASDAQ:VIE) is the least popular one with only 6 bullish hedge fund positions. Sanmina Corporation (NASDAQ:SANM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately SANM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SANM investors were disappointed as the stock returned -9.9% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.