Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in HEICO Corporation (NYSE:HEI)? The smart money sentiment can provide an answer to this question.
Is HEICO Corporation (NYSE:HEI) a buy right now? Investors who are in the know are betting on the stock. The number of long hedge fund positions inched up by 11 in recent months. Our calculations also showed that HEI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Chilton of Chilton Investment Company
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s view the new hedge fund action regarding HEICO Corporation (NYSE:HEI).
What have hedge funds been doing with HEICO Corporation (NYSE:HEI)?
Heading into the first quarter of 2020, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the third quarter of 2019. By comparison, 31 hedge funds held shares or bullish call options in HEI a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of HEICO Corporation (NYSE:HEI), with a stake worth $146.5 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $140.5 million. Chilton Investment Company, Select Equity Group, 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 Silver Heights Capital Management allocated the biggest weight to HEICO Corporation (NYSE:HEI), around 28.86% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 4.06 percent of its 13F equity portfolio to HEI.
As industrywide interest jumped, specific money managers have jumped into HEICO Corporation (NYSE:HEI) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in HEICO Corporation (NYSE:HEI). Point72 Asset Management had $30.9 million invested in the company at the end of the quarter. Bernard Selz’s Selz Capital also initiated a $12.3 million position during the quarter. The other funds with brand new HEI positions are Ben Gambill’s Tiger Eye Capital, Dmitry Balyasny’s Balyasny Asset Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s also examine hedge fund activity in other stocks similar to HEICO Corporation (NYSE:HEI). We will take a look at CBOE Global Markets, Inc. (NASDAQ:CBOE), Plains All American Pipeline, L.P. (NYSE:PAA), Galapagos NV (NASDAQ:GLPG), and Darden Restaurants, Inc. (NYSE:DRI). All of these stocks’ market caps resemble HEI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CBOE | 27 | 1050257 | 1 |
| PAA | 12 | 168993 | -5 |
| GLPG | 14 | 117885 | 1 |
| DRI | 33 | 730138 | 2 |
| Average | 21.5 | 516818 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $517 million. That figure was $1205 million in HEI’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks HEICO Corporation (NYSE:HEI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately HEI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HEI were disappointed as the stock returned -15.3% during the first two months of 2020 (through March 9th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
