Is Layne Christensen Company (LAYN) A Good Stock To Buy?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Layne Christensen Company (NASDAQ:LAYN).

Layne Christensen Company (NASDAQ:LAYN) shareholders have witnessed an increase in hedge fund sentiment of late. LAYN was in 7 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with LAYN positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Era Group Inc (NYSE:ERA), Century Casinos, Inc. (NASDAQ:CNTY), and Mediwound Ltd (NASDAQ:MDWD) to gather more data points.

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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With all of this in mind, let’s take a look at the new action regarding Layne Christensen Company (NASDAQ:LAYN).

What have hedge funds been doing with Layne Christensen Company (NASDAQ:LAYN)?

At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, up 17% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in LAYN heading into this year. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Nelson Obus’s Wynnefield Capital has the number one position in Layne Christensen Company (NASDAQ:LAYN), worth close to $15.3 million, accounting for 5.1% of its total 13F portfolio. The second largest stake is held by Chuck Royce of Royce & Associates, which manages a $14.3 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism comprise Peter Schliemann’s Rutabaga Capital Management, Mario Gabelli’s GAMCO Investors and Renaissance Technologies, one of the biggest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, specific money managers have been driving this bullishness. Cove Street Capital, led by Jeffrey Bronchick, assembled the biggest position in Layne Christensen Company (NASDAQ:LAYN). According to regulatory filings, the fund had $2.3 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.2 million position during the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Layne Christensen Company (NASDAQ:LAYN) but similarly valued. We will take a look at Era Group Inc (NYSE:ERA), Century Casinos, Inc. (NASDAQ:CNTY), Mediwound Ltd (NASDAQ:MDWD), and PFSweb, Inc. (NASDAQ:PFSW). This group of stocks’ market caps are similar to LAYN’s market cap.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $59 million in LAYN’s case. PFSweb, Inc. (NASDAQ:PFSW) is the most popular stock in this table. On the other hand Mediwound Ltd (NASDAQ:MDWD) is the least popular one with only 5 bullish hedge fund positions. Layne Christensen Company (NASDAQ:LAYN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PFSW might be a better candidate to consider taking a long position in.

Disclosure: none.