PMC-Sierra Inc (PMCS): Hedge Funds Are Snapping Up

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.

Is PMC-Sierra Inc (NASDAQ:PMCS) a buy, sell, or hold? The smart money is turning bullish. The number of long hedge fund bets went up by 7 recently. At the end of this article we will also compare PMCS to other stocks including Apogee Enterprises, Inc. (NASDAQ:APOG), Natus Medical Inc (NASDAQ:BABY), and Gogo Inc (NASDAQ:GOGO) to get a better sense of its popularity.

If you’d ask most market participants, hedge funds are perceived as worthless, outdated financial vehicles of yesteryear. While there are more than an 8000 funds trading at present, Our researchers choose to focus on the aristocrats of this group, around 700 funds. These hedge fund managers direct most of the smart money’s total capital, and by tailing their best investments, Insider Monkey has revealed numerous investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, let’s take a look at the latest action regarding PMC-Sierra Inc (NASDAQ:PMCS).

What does the smart money think about PMC-Sierra Inc (NASDAQ:PMCS)?

At Q3’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the second quarter. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Eric Bannasch’s Cadian Capital has the most valuable position in PMC-Sierra Inc (NASDAQ:PMCS), worth close to $201 million, accounting for 7.2% of its total 13F portfolio. On Cadian Capital’s heels is Ken Fisher’s Fisher Asset Management, with a $76.3 million position; 0.2% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions encompass George Soros’ Soros Fund Management, John Orrico’s Water Island Capital and Ralph V. Whitworth’s Relational Investors.

Consequently, key hedge funds were breaking ground themselves. Water Island Capital assembled the most valuable position in PMC-Sierra Inc (NASDAQ:PMCS). Water Island Capital had $36.7 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also initiated a $13.9 million position during the quarter. The other funds with brand new PMCS positions are Dmitry Balyasny’s Balyasny Asset Management, Andy Redleaf’s Whitebox Advisors, and Chuck Royce’s Royce & Associates.

Let’s also examine hedge fund activity in other stocks similar to PMC-Sierra Inc (NASDAQ:PMCS). We will take a look at Apogee Enterprises, Inc. (NASDAQ:APOG), Natus Medical Inc (NASDAQ:BABY), Gogo Inc (NASDAQ:GOGO), and Olin Corporation (NYSE:OLN). All of these stocks’ market caps are closest to PMCS’s market cap.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $214 million, lower than $540 million in PMCS’s case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Gogo Inc (NASDAQ:GOGO) is the least popular one with only 18 bullish hedge fund positions. PMC-Sierra Inc (NASDAQ:PMCS) 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 OLN might be a better candidate to consider a long position.