You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
In this article, we are going to take a closer look at Methode Electronics Inc. (NYSE:MEI), which was included in the 13F portfolios of 15 funds from our database at the end of the third quarter of 2016. MEI investors should pay attention to a slight decrease in hedge fund sentiment in recent months, as there had been 16 funds with MEI holdings at the end of the previous quarter. At the end of this article we will also compare MEI to other stocks including Denbury Resources Inc. (NYSE:DNR), Apogee Enterprises, Inc. (NASDAQ:APOG), and Portola Pharmaceuticals Inc (NASDAQ:PTLA) to get a better sense of its popularity.
Follow Methode Electronics Inc (NYSE:MEI)
Follow Methode Electronics Inc (NYSE:MEI)
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Keeping this in mind, let’s take a peek at the recent action surrounding Methode Electronics Inc. (NYSE:MEI).
What does the smart money think about Methode Electronics Inc. (NYSE:MEI)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 6% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in MEI at the beginning of this year. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Methode Electronics Inc. (NYSE:MEI), worth close to $62.8 million, corresponding to 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, one of the largest hedge funds in the world, with a $40.3 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish encompass Robert B. Gillam’s McKinley Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Cliff Asness’ AQR Capital Management. 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.
Since Methode Electronics Inc. (NYSE:MEI) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds that elected to cut their positions entirely last quarter. It’s worth mentioning that Richard S. Meisenberg’s ACK Asset Management cashed in the largest stake of the 700 funds watched by Insider Monkey, valued at about $10.5 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $1 million worth.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Methode Electronics Inc. (NYSE:MEI) but similarly valued. We will take a look at Denbury Resources Inc. (NYSE:DNR), Apogee Enterprises, Inc. (NASDAQ:APOG), Portola Pharmaceuticals Inc (NASDAQ:PTLA), and TransAlta Corporation (USA) (NYSE:TAC). This group of stocks’ market caps resemble MEI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DNR | 18 | 65600 | -3 |
| APOG | 14 | 71670 | 1 |
| PTLA | 15 | 236123 | -2 |
| TAC | 7 | 32380 | -1 |
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $119 million in MEI’s case. Denbury Resources Inc. (NYSE:DNR) is the most popular stock in this table. On the other hand TransAlta Corporation (USA) (NYSE:TAC) is the least popular one with only seven bullish hedge fund positions. Methode Electronics Inc. (NYSE:MEI) 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 Denbury Resources Inc. (NYSE:DNR) might be a better candidate to consider taking a long position in.
Disclosure: none
