At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Richardson Electronics, Ltd. (NASDAQ:RELL) makes for a good investment right now.
Richardson Electronics, Ltd. (NASDAQ:RELL) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of the third quarter of 2019. 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 Strattec Security Corp. (NASDAQ:STRT), Natural Health Trends Corp. (NASDAQ:NHTC), and Amtech Systems, Inc. (NASDAQ:ASYS) to gather more data points. Our calculations also showed that RELL isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action regarding Richardson Electronics, Ltd. (NASDAQ:RELL).
How are hedge funds trading Richardson Electronics, Ltd. (NASDAQ:RELL)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RELL over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Richardson Electronics, Ltd. (NASDAQ:RELL), with a stake worth $6 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $4.8 million. Ancora Advisors was 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 Ancora Advisors allocated the biggest weight to Richardson Electronics, Ltd. (NASDAQ:RELL), around 0.06% of its portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to RELL.
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 now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Richardson Electronics, Ltd. (NASDAQ:RELL) but similarly valued. We will take a look at Strattec Security Corp. (NASDAQ:STRT), Natural Health Trends Corp. (NASDAQ:NHTC), Amtech Systems, Inc. (NASDAQ:ASYS), and Applied Genetic Technologies Corp (NASDAQ:AGTC). This group of stocks’ market caps are similar to RELL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STRT | 4 | 12161 | 0 |
| NHTC | 5 | 8269 | -3 |
| ASYS | 7 | 21296 | 0 |
| AGTC | 9 | 9346 | 4 |
| Average | 6.25 | 12768 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $12 million in RELL’s case. Applied Genetic Technologies Corp (NASDAQ:AGTC) is the most popular stock in this table. On the other hand Strattec Security Corp. (NASDAQ:STRT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Richardson Electronics, Ltd. (NASDAQ:RELL) is even less popular than STRT. Hedge funds dodged a bullet by taking a bearish stance towards RELL. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately RELL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RELL investors were disappointed as the stock returned -3.5% during the fourth quarter (through 11/22) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
