Is Innovative Solutions & Support Inc (NASDAQ:ISSC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Innovative Solutions & Support Inc (NASDAQ:ISSC) a buy here? The smart money was turning bullish. The number of bullish hedge fund positions improved by 2 lately. Innovative Solutions & Support Inc (NASDAQ:ISSC) was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 5. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ISSC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now we’re going to review the fresh hedge fund action surrounding Innovative Solutions & Support Inc (NASDAQ:ISSC).
What does smart money think about Innovative Solutions & Support Inc (NASDAQ:ISSC)?
At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in ISSC 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.
Among these funds, Renaissance Technologies held the most valuable stake in Innovative Solutions & Support Inc (NASDAQ:ISSC), which was worth $4 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $0.7 million worth of shares. Royce & Associates, Citadel Investment Group, and Prelude Capital (previously Springbok Capital) 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 GAMCO Investors allocated the biggest weight to Innovative Solutions & Support Inc (NASDAQ:ISSC), around 0.01% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to ISSC.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Innovative Solutions & Support Inc (NASDAQ:ISSC). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital) also made a $0 million investment in the stock during the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Innovative Solutions & Support Inc (NASDAQ:ISSC) but similarly valued. These stocks are Permian Basin Royalty Trust (NYSE:PBT), Envela Corporation (NYSE:ELA), Erytech Pharma S.A. (NASDAQ:ERYP), CONSOL Energy Inc. (NYSE:CEIX), Civeo Corporation (NYSE:CVEO), Esquire Financial Holdings, Inc. (NASDAQ:ESQ), and Lumos Pharma, Inc. (NASDAQ:LUMO). This group of stocks’ market caps are closest to ISSC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PBT | 3 | 1010 | -1 |
| ELA | 1 | 1782 | -1 |
| ERYP | 2 | 4002 | 0 |
| CEIX | 10 | 10430 | -3 |
| CVEO | 12 | 42395 | -2 |
| ESQ | 4 | 12212 | -1 |
| LUMO | 5 | 26303 | 0 |
| Average | 5.3 | 14019 | -1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.3 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $5 million in ISSC’s case. Civeo Corporation (NYSE:CVEO) is the most popular stock in this table. On the other hand Envela Corporation (NYSE:ELA) is the least popular one with only 1 bullish hedge fund positions. Innovative Solutions & Support Inc (NASDAQ:ISSC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ISSC is 55.2. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately ISSC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ISSC investors were disappointed as the stock returned -1.6% since the end of September (through 11/27) 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 2020.
Follow Innovative Solutions & Support Inc (NASDAQ:ISSC)
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Disclosure: None. This article was originally published at Insider Monkey.
