Here is What Hedge Funds Think About HEICO Corporation (HEI)

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards HEICO Corporation (NYSE:HEI).

Is HEICO Corporation (NYSE:HEI) a buy, sell, or hold? The best stock pickers were becoming less hopeful. The number of bullish hedge fund positions went down by 4 lately. HEICO Corporation (NYSE:HEI) was in 41 hedge funds’ portfolios at the end of the second quarter of 2021. 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 Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Nathaniel August of Mangrove Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. 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 homepage. Now we’re going to analyze the key hedge fund action encompassing HEICO Corporation (NYSE:HEI).

Do Hedge Funds Think HEI Is A Good Stock To Buy Now?

At Q2’s end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the first quarter of 2020. By comparison, 46 hedge funds held shares or bullish call options in HEI 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.

More specifically, Gobi Capital was the largest shareholder of HEICO Corporation (NYSE:HEI), with a stake worth $115.5 million reported as of the end of June. Trailing Gobi Capital was Fisher Asset Management, which amassed a stake valued at $100.7 million. Giverny Capital, Silver Heights Capital Management, and Renaissance Technologies 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 17.89% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, setting aside 6.95 percent of its 13F equity portfolio to HEI.

Because HEICO Corporation (NYSE:HEI) has witnessed a decline in interest from hedge fund managers, we can see that there was a specific group of fund managers who were dropping their full holdings by the end of the second quarter. It’s worth mentioning that Terry Smith’s Fundsmith Long/Short Fund cut the biggest position of the 750 funds monitored by Insider Monkey, totaling close to $4.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $1.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds by the end of the second 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. These stocks are Insulet Corporation (NASDAQ:PODD), Cincinnati Financial Corporation (NASDAQ:CINF), Teleflex Incorporated (NYSE:TFX), Broadridge Financial Solutions, Inc. (NYSE:BR), M&T Bank Corporation (NYSE:MTB), Charles River Laboratories International Inc. (NYSE:CRL), and Warner Music Group Corp. (NASDAQ:WMG). This group of stocks’ market valuations resemble HEI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $828 million. That figure was $644 million in HEI’s case. M&T Bank Corporation (NYSE:MTB) is the most popular stock in this table. On the other hand Cincinnati Financial Corporation (NASDAQ:CINF) is the least popular one with only 22 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 62.2. 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 21.8% in 2021 through October 11th and beat the market again by 4.4 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 -3.2% since the end of June (through 10/11) 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.

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