Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards HEICO Corporation (NYSE:HEI).
Is HEICO Corporation (NYSE:HEI) the right investment to pursue these days? The best stock pickers were taking a bearish view. The number of bullish hedge fund bets were cut by 6 in recent months. HEICO Corporation (NYSE:HEI) was in 35 hedge funds’ portfolios at the end of September. The all time high for this statistic is 57. Our calculations also showed that HEI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a glance at the fresh hedge fund action surrounding HEICO Corporation (NYSE:HEI).
Do Hedge Funds Think HEI Is A Good Stock To Buy Now?
At the end of September, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. By comparison, 43 hedge funds held shares or bullish call options in HEI a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Gobi Capital was the largest shareholder of HEICO Corporation (NYSE:HEI), with a stake worth $220.3 million reported as of the end of September. Trailing Gobi Capital was Fisher Asset Management, which amassed a stake valued at $95.9 million. Giverny Capital, Silver Heights Capital Management, and Markel Gayner Asset 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 Silver Heights Capital Management allocated the biggest weight to HEICO Corporation (NYSE:HEI), around 17.76% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, setting aside 5.82 percent of its 13F equity portfolio to HEI.
Seeing as HEICO Corporation (NYSE:HEI) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds that slashed their full holdings in the third quarter. At the top of the heap, Nathaniel August’s Mangrove Partners cut the largest investment of all the hedgies monitored by Insider Monkey, comprising about $6.3 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $3.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as HEICO Corporation (NYSE:HEI) but similarly valued. We will take a look at Amcor plc (NYSE:AMCR), Quest Diagnostics Incorporated (NYSE:DGX), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Teleflex Incorporated (NYSE:TFX), Domino’s Pizza, Inc. (NYSE:DPZ), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), and Pembina Pipeline Corp (NYSE:PBA). This group of stocks’ market caps match HEI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMCR | 19 | 214115 | 3 |
| DGX | 36 | 488311 | 5 |
| SSNC | 51 | 2925436 | 2 |
| TFX | 26 | 579122 | -4 |
| DPZ | 36 | 2541766 | 5 |
| JBHT | 22 | 315309 | -4 |
| PBA | 8 | 62632 | -7 |
| Average | 28.3 | 1018099 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $1018 million. That figure was $719 million in HEI’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 8 bullish hedge fund positions. HEICO Corporation (NYSE:HEI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HEI is 48.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately HEI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on HEI were disappointed as the stock returned 5% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Heico Corp (NYSE:HEI, HEI.A)
Follow Heico Corp (NYSE:HEI, HEI.A)
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Disclosure: None. This article was originally published at Insider Monkey.
