Is Microchip Technology Inc. (MCHP) A Good Stock To Buy?

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Microchip Technology Inc. (NASDAQ:MCHP) and see how it was affected.

Is Microchip Technology Inc. (NASDAQ:MCHP) a healthy stock for your portfolio? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets improved by 7 recently. MCHP was in 24 hedge funds’ portfolios at the end of the third quarter of 2015. There were 17 hedge funds in our database with MCHP holdings 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 Delhaize Group (ADR) (NYSE:DEG), Tripadvisor Inc (NASDAQ:TRIP), and Harris Corporation (NYSE:HRS) to gather more data points.

To most stock holders, hedge funds are viewed as underperforming, old investment tools of the past. While there are more than 8000 funds in operation today, We choose to focus on the masters of this group, approximately 700 funds. These money managers administer the lion’s share of the hedge fund industry’s total asset base, and by monitoring their finest stock picks, Insider Monkey has figured out many investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, let’s go over the recent action encompassing Microchip Technology Inc. (NASDAQ:MCHP).

What does the smart money think about Microchip Technology Inc. (NASDAQ:MCHP)?

At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the previous quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC has the number one position in Microchip Technology Inc. (NASDAQ:MCHP), worth close to $20.1 million, corresponding to 0.2% of its total 13F portfolio. On First Pacific Advisors LLC’s heels is Winton Capital Management, led by David Harding, holding an $17.6 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions include Peter Muller’s PDT Partners, Clint Carlson’s Carlson Capital and Jim Simons’ Renaissance Technologies.

As aggregate interest increased, key money managers were breaking ground themselves. Andor Capital Management, managed by Daniel Benton, established the biggest position in Microchip Technology Inc. (NASDAQ:MCHP). Andor Capital Management had $8.6 million invested in the company at the end of the quarter. George Hall’s Clinton Group also made an $5.8 million investment in the stock during the quarter. The following funds were also among the new MCHP investors: Glenn Russell Dubin’s Highbridge Capital Management, Paul Hondros’ AlphaOne Capital Partners, and Matthew Tewksbury’s Stevens Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Microchip Technology Inc. (NASDAQ:MCHP). We will take a look at Delhaize Group (ADR) (NYSE:DEG), Tripadvisor Inc (NASDAQ:TRIP), Harris Corporation (NYSE:HRS), and Celanese Corporation (NYSE:CE). This group of stocks’ market valuations are similar to MCHP’s market valuation.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $619 million. That figure was $152 million in MCHP’s case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand Delhaize Group (ADR) (NYSE:DEG) is the least popular one with only 5 bullish hedge fund positions. Microchip Technology Inc. (NASDAQ:MCHP) 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 TRIP might be a better candidate to consider a long position.