Is SurModics, Inc. (SRDX) Worthy of Your Portfolio?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

In this article, we are going to discuss SurModics, Inc. (NASDAQ:SRDX), the hedge fund sentiment towards which remained flat at the end of the 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 Boingo Wireless Inc (NASDAQ:WIFI), DHT Holdings Inc (NYSE:DHT), and Midland States Bancorp Inc (NASDAQ:MSBI) 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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Now, we’re going to check out the fresh action regarding SurModics, Inc. (NASDAQ:SRDX).

Hedge fund activity in SurModics, Inc. (NASDAQ:SRDX)

Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, unchanged over the quarter. The graph below displays the number of hedge funds with bullish position in SRDX over the last five quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the number one position in SurModics, Inc. (NASDAQ:SRDX), worth close to $25.9 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Douglas T. Granat’s Trigran Investments, with a $16.5 million position; the fund has 4.3% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism include Chuck Royce’s Royce & Associates, Mario Gabelli’s GAMCO Investors, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors. 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.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Highbridge Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was McKinley Capital Management).

Let’s now review hedge fund activity in other stocks similar to SurModics, Inc. (NASDAQ:SRDX). We will take a look at Boingo Wireless Inc (NASDAQ:WIFI), DHT Holdings Inc (NYSE:DHT), Midland States Bancorp Inc (NASDAQ:MSBI), and Libbey Inc. (NYSEAMEX:LBY). This group of stocks’ market caps resemble SRDX’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $70 million in SRDX’s case. Boingo Wireless Inc (NASDAQ:WIFI) is the most popular stock in this table. On the other hand Midland States Bancorp Inc (NASDAQ:MSBI) is the least popular one with only two funds having reported long positions. SurModics, Inc. (NASDAQ:SRDX) 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 Boingo Wireless Inc (NASDAQ:WIFI) might be a better candidate to consider taking a long position in.

Disclosure: none