LMI Aerospace, Inc. (LMIA): Are Hedge Funds Right About This Stock?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

LMI Aerospace, Inc. (NASDAQ:LMIA) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of September. At the end of this article we will also compare LMIA to other stocks including Hutchison China MediTech Ltd – ADR (NASDAQ:HCM), GSI Technology, Inc. (NASDAQ:GSIT), and CorMedix Inc. (NYSEAMEX:CRMD) to get a better sense of its popularity.

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 gander at the new action encompassing LMI Aerospace, Inc. (NASDAQ:LMIA).

How are hedge funds trading LMI Aerospace, Inc. (NASDAQ:LMIA)?

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LMIA over the last 5 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Glen Capital Partners, led by Gregory Summe, holds the biggest position in LMI Aerospace, Inc. (NASDAQ:LMIA). According to regulatory filings, the fund has a $10.1 million position in the stock, comprising 13.7% of its 13F portfolio. On Glen Capital Partners’s heels is Chuck Royce of Royce & Associates, with a $9.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass Phill Gross and Robert Atchinson’s Adage Capital Management, Peter Schliemann’s Rutabaga Capital Management and Renaissance Technologies, one of the largest hedge funds in the world. 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.

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 similar to LMI Aerospace, Inc. (NASDAQ:LMIA). We will take a look at Hutchison China MediTech Ltd – ADR (NASDAQ:HCM), GSI Technology, Inc. (NASDAQ:GSIT), CorMedix Inc. (NYSEAMEX:CRMD), and Comstock Resources Inc (NYSE:CRK). This group of stocks’ market caps resemble LMIA’s market cap.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $35 million in LMIA’s case. Comstock Resources Inc (NYSE:CRK) is the most popular stock in this table. On the other hand CorMedix Inc. (NYSEAMEX:CRMD) is the least popular one with only 3 bullish hedge fund positions. LMI Aerospace, Inc. (NASDAQ:LMIA) 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 CRK might be a better candidate to consider taking a long position in.

Disclosure: none.