Did hedge funds see IHS Inc. (NYSE:IHS) posting better-than-expected performance for its just-ended fiscal second quarter of 2015? It certainly seems so, as more hedge funds tracked by Insider Monkey had long positions in the company by the end of the first quarter than they did at the end of 2014. IHS Inc. (NYSE:IHS) reported strong numbers for the company’s second quarter, which ended May 31. The data and analytics firm reported earnings of $51 million, or $0.74 per share, compared to earnings of $55.5 million, or $1.47 per share, in the same quarter a year ago. Adjusted earnings was reported to be $185.1 million, or $1.50 per share, up from a year-ago profit of $1.47 per share. The firm also reported revenues of $591.4 million, up from $568 million in the second quarter of 2014. Analysts were expecting IHS Inc. to report $1.45 adjusted EPS on revenues of $575.4 million. For the full fiscal year of 2015, the company has lifted its guidance to a range of $5.80 to $6.00 per share on revenue of $2.3 to $2.34 billion. Estimates for the company’s full fiscal year stood at $5.85 per share on revenues of $2.28 billion. The firm also announced that it has a new $500 million stock buyback program. Nonetheless, it is noteworthy to point out that IHS Inc. is having a case of buy on the rumor, sell on the news today, as it opened as high as $129.57 per share but has moved to a low of $126.03 per share in the early hours of trading.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 144% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
Two important metrics to consider when judging the potential of a stock are insider and hedge fund sentiment, consisting of the company’s own upper management and some of the most astute minds in finance respectively. Let’s consider these metrics now to get a grasp on the sentiment surrounding IHS. As mentioned, hedge funds seem to have seen the great second quarter performance of IHS Inc. coming, as they were taking an optimistic view of the company heading into the quarter. The number of bullish hedge fund positions among funds we track improved in recent months, as the company’s shares were in 26 hedge funds’ portfolios at the end of March, compared to being housed in 24 portfolios at the end of the previous quarter.
In terms of insider sentiment, there were small sales of the company’s shares by insiders during the first and second quarters of the year. Chief Financial Officer Todd Hyatt sold 4,500 shares of the company from February up to the end of April. Vice Chairman Daniel Yergin sold 14,336 shares split in two transactions by the end of March, and President and CEO Scott Key sold 3,000 shares also by the end of March.
With this in mind, let’s look at how hedge funds have been trading IHS Inc. (NYSE:IHS).
How have hedgies been trading IHS Inc. (NYSE:IHS)?
By the end of this year’s first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of 8% from the preceding quarter. In terms of value of holdings, hedge funds owned IHS Inc. shares amounting to about $1.02 billion by the end of the first three months of 2015, up significantly by 42.66% from about $715.77 million at the end of the previous quarter, while shares increased by just 5.66% during the same period, meaning much of the appreciation was bought, not earned through returns.
Robert Joseph Caruso’s Select Equity Group had the most valuable position in IHS Inc. (NYSE:IHS), worth close to $321.3 million, corresponding to 2.9% of its total 13F portfolio. Coming in second was John Griffin of Blue Ridge Capital, with a $273 million position. His fund has 3.1% of its 13F portfolio invested in the data and analytics company. Some other members of the smart money that held long positions were D. E. Shaw’s D. E. Shaw, and Jim Simons’ Renaissance Technologies, both quant funds who use a good deal of data and analytics of their own to choose which companies to invest in.
As one would reasonably expect, key hedge funds have been driving this bullishness. Hitchwood Capital Management, managed by James Crichton, created the most outsized position in IHS Inc. (NYSE:IHS). Hitchwood Capital Management had 137.7 million invested in the company at the end of the quarter. Mick Hellman’s HMI Capital also made a $25.7 million investment in the stock during the quarter. The other funds with brand new IHS positions were Seymour Sy Kaufman and Michael Stark’s Crosslink Capital, James Parsons’ Junto Capital Management, and Chuck Royce’s Royce & Associates.
Due to the confidence of hedge funds, both in terms of number of hedge funds which are long in the stock and the total value of holdings they owned by the end of the first quarter, as well as the better-than-expected second quarter performance and lifted guidance for the full fiscal year, we venture IHS Inc. (NYSE:IHS) is a good stock to buy.
Disclosure: None
