Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Resources Connection, Inc. (NASDAQ:RECN) from the perspective of those elite funds.
Hedge fund interest in Resources Connection, Inc. (NASDAQ:RECN) shares was flat at the end of 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 Odonate Therapeutics, Inc. (NASDAQ:ODT), PennantPark Investment Corp. (NASDAQ:PNNT), and Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) to gather more data points.
In the financial world there are dozens of formulas investors employ to assess stocks. A duo of the less known formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce the market by a significant margin (see the details here).
Let’s review the new hedge fund action regarding Resources Connection, Inc. (NASDAQ:RECN).
What have hedge funds been doing with Resources Connection, Inc. (NASDAQ:RECN)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, no change from the second quarter of 2018. On the other hand, there were a total of 12 hedge funds with a bullish position in RECN at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in Resources Connection, Inc. (NASDAQ:RECN), which was worth $25.6 million at the end of the third quarter. On the second spot was Millennium Management which amassed $4.3 million worth of shares. Moreover, Arrowstreet Capital, Fisher Asset Management, and Two Sigma Advisors were also bullish on Resources Connection, Inc. (NASDAQ:RECN), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: BlueCrest Capital Mgmt.. 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 PEAK6 Capital Management).
Let’s now review hedge fund activity in other stocks similar to Resources Connection, Inc. (NASDAQ:RECN). These stocks are Odonate Therapeutics, Inc. (NASDAQ:ODT), PennantPark Investment Corp. (NASDAQ:PNNT), Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), and Star Group, L.P. (NYSE:SGU). This group of stocks’ market caps are closest to RECN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ODT | 8 | 310000 | 0 |
| PNNT | 7 | 14632 | 2 |
| RRGB | 16 | 64371 | 2 |
| SGU | 9 | 115811 | 0 |
| Average | 10 | 126204 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $41 million in RECN’s case. Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is the most popular stock in this table. On the other hand PennantPark Investment Corp. (NASDAQ:PNNT) is the least popular one with only 7 bullish hedge fund positions. Resources Connection, Inc. (NASDAQ:RECN) 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 RRGB might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
