Mobileye NV (MBLY) Pops Then Drops On Short-Lived Positivity but Hedge Funds Love the Stock

Mobileye NV (NYSE:MBLY) shares popped by over 4% earlier today from its closing price on Friday, before its gains were trimmed by the market, as the stock witnesses the short-lived effects of positive notes from analysts last week and today. In a note today, Citigroup Inc (NYSE:C) reiterated its ‘Buy’ rating on Mobileye’s stock. In another note today, Morgan Stanley’s Ravi Shankey said that the inclusion of Mobileye NV on Volkswagen AG’s strategic supplier list may be the first step in the firm becoming a Volkswagen “core vision systems supplier”. On Thursday, RBC Capital Markets increased its price target on the stock to $68.00 from $62.00.

Citigroup, Morgan Stanley and RBC Capital are not the only ratings firms to recently shine a positive light on Mobileye NV (NYSE:MBLY). On July 21, Deutsche Bank raised its price target on the stock to $72.00 from $52.00. It also reiterated its ‘Buy’ rating, citing company executives saying they expect their market share to not decrease by 50% in the next five years. The financial firm also noted that original equipment manufacturers are intent on using mobile technology, including crash mitigation systems across multiple models.

Mobileye NV (NYSE:MBLY) is expected to release its second-quarter results before markets open on Thursday. Wall Street is expecting an EPS of $0.04 versus a flat EPS in the same quarter last year. In the previous quarter, Mobileye reported an EPS of $0.08 on revenues of $45.6 million, beating analyst estimates of $0.07 in EPS on $44.23 million in revenues.

The positivity surrounding Mobileye NV (NYSE:MBLY) is also reflected on the whopping increase of the hedge fund holdings by 204.68% on the quarter to $452.31 million in hedge fund holdings by March 31. This is indicative of a very bullish sentiment among hedge funds. Furthermore, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock heading into the second quarter, significantly up from 21 a quarter earlier.

General opinion is that hedge funds underperform the S&P500 based on net returns. However, we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P500 every year since it was launched in August 2012, returning 123.1% and beating the market by 66.5 percentage points (read more details). Because of this, we know that collective hedge fund sentiment is very valuable.

Keeping these in mind, let’s view the latest hedge fund activity regarding Mobileye NV.