Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in LSI Industries, Inc. (NASDAQ:LYTS) shares was flat at the end of last quarter. This is usually a negative indicator. 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 AgroFresh Solutions Inc (NASDAQ:AGFS), Mindray Medical International Ltd (NYSE:MR), and Marchex, Inc. (NASDAQ:MCHX) to gather more data points. Our calculations also showed that LYTS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are tons of methods shareholders put to use to assess their holdings. A duo of the best methods are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top investment managers can beat the broader indices by a superb amount (see the details here).
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to check out the new hedge fund action encompassing LSI Industries, Inc. (NASDAQ:LYTS).
How are hedge funds trading LSI Industries, Inc. (NASDAQ:LYTS)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in LYTS a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the most valuable position in LSI Industries, Inc. (NASDAQ:LYTS), worth close to $9.5 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $4.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Constantinos J. Christofilis’s Archon Capital Management, Jeffrey Bronchick’s Cove Street Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Archon Capital Management allocated the biggest weight to LSI Industries, Inc. (NASDAQ:LYTS), around 0.43% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 0.18 percent of its 13F equity portfolio to LYTS.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks similar to LSI Industries, Inc. (NASDAQ:LYTS). We will take a look at AgroFresh Solutions Inc (NASDAQ:AGFS), Mindray Medical International Ltd (NYSE:MR), Marchex, Inc. (NASDAQ:MCHX), and Capitala Finance Corp (NASDAQ:CPTA). All of these stocks’ market caps are similar to LYTS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGFS | 8 | 2189 | 2 |
| MR | 12 | 14558 | -3 |
| MCHX | 17 | 21360 | 0 |
| CPTA | 2 | 1591 | -1 |
| Average | 9.75 | 9925 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $18 million in LYTS’s case. Marchex, Inc. (NASDAQ:MCHX) is the most popular stock in this table. On the other hand Capitala Finance Corp (NASDAQ:CPTA) is the least popular one with only 2 bullish hedge fund positions. LSI Industries, Inc. (NASDAQ:LYTS) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LYTS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LYTS investors were disappointed as the stock returned 5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
