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 Sanmina Corporation (NASDAQ:SANM) and determine whether hedge funds had an edge regarding this stock.
Sanmina Corporation (NASDAQ:SANM) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 23. SANM has experienced an increase in hedge fund sentiment in recent months. There were 15 hedge funds in our database with SANM holdings at the end of March. Our calculations also showed that SANM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a look at the fresh hedge fund action regarding Sanmina Corporation (NASDAQ:SANM).
What have hedge funds been doing with Sanmina Corporation (NASDAQ:SANM)?
Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in SANM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in Sanmina Corporation (NASDAQ:SANM), which was worth $42.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $24.8 million worth of shares. D E Shaw, Arrowstreet Capital, and Royce & Associates 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 0.59% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, setting aside 0.25 percent of its 13F equity portfolio to SANM.
As aggregate interest increased, specific money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, established the biggest position in Sanmina Corporation (NASDAQ:SANM). Alyeska Investment Group had $5.7 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $1.6 million position during the quarter. The following funds were also among the new SANM investors: Greg Eisner’s Engineers Gate Manager, Dmitry Balyasny’s Balyasny Asset Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sanmina Corporation (NASDAQ:SANM) but similarly valued. We will take a look at Intra-Cellular Therapies Inc (NASDAQ:ITCI), Northwest Natural Holding Company (NYSE:NWN), Fulton Financial Corp (NASDAQ:FULT), Xperi Holding Corporation (NASDAQ:XPER), Glaukos Corporation (NYSE:GKOS), Edgewell Personal Care Company (NYSE:EPC), and Fluor Corporation (NYSE:FLR). This group of stocks’ market caps are similar to SANM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ITCI | 13 | 112591 | -6 |
| NWN | 14 | 29553 | -3 |
| FULT | 15 | 46005 | 1 |
| XPER | 22 | 143622 | 2 |
| GKOS | 18 | 184439 | 3 |
| EPC | 20 | 209272 | -5 |
| FLR | 20 | 102139 | -4 |
| Average | 17.4 | 118232 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $144 million in SANM’s case. Xperi Holding Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the least popular one with only 13 bullish hedge fund positions. Sanmina Corporation (NASDAQ:SANM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SANM is 36.1. 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. This is a slightly positive signal but 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately SANM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SANM were disappointed as the stock returned 8% in Q3 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 many of these stocks already outperformed the market so far this year.
Follow Sanmina Corp (NASDAQ:SANM)
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Disclosure: None. This article was originally published at Insider Monkey.
