Is Finisar Corporation (FNSR) A Good Stock To Buy?

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Finisar Corporation (NASDAQ:FNSR) from the perspective of those elite funds.

Finisar Corporation (NASDAQ:FNSR) investors should pay attention to an increase in hedge fund interest in recent months. FNSR was in 22 hedge funds’ portfolios at the end of the third quarter of 2016. There were 21 hedge funds in our database with FNSR positions at the end of the previous quarter. At the end of this article we will also compare FNSR to other stocks including KBR, Inc. (NYSE:KBR), Groupon Inc (NASDAQ:GRPN), and Balchem Corporation (NASDAQ:BCPC) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s take a look at the new action surrounding Finisar Corporation (NASDAQ:FNSR).

How are hedge funds trading Finisar Corporation (NASDAQ:FNSR)?

At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the largest position in Finisar Corporation (NASDAQ:FNSR), worth close to $124.6 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, a quant hedge fund, holding a $98.9 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions comprise Ken Griffin’s Citadel Investment Group, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management. We should note that none of these hedge funds were among our list of 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now, key money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Finisar Corporation (NASDAQ:FNSR). Balyasny Asset Management had $6.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $6.3 million investment in the stock during the quarter. The other funds with brand new FNSR positions are Principal Global Investors’s Columbus Circle Investors, Mike Vranos’s Ellington, and Charles Davidson’s Wexford Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Finisar Corporation (NASDAQ:FNSR) but similarly valued. We will take a look at KBR, Inc. (NYSE:KBR), Groupon Inc (NASDAQ:GRPN), Balchem Corporation (NASDAQ:BCPC), and Western Refining, Inc. (NYSE:WNR). This group of stocks’ market caps are closest to FNSR’s market cap.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $418 million in FNSR’s case. Western Refining, Inc. (NYSE:WNR) is the most popular stock in this table. On the other hand Balchem Corporation (NASDAQ:BCPC) is the least popular one with only 8 bullish hedge fund positions. Finisar Corporation (NASDAQ:FNSR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard WNR might be a better candidate to consider a long position.