Should You Avoid Exponent, Inc. (EXPO)?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Exponent, Inc. (NASDAQ:EXPO) from the perspective of those elite funds.

Is Exponent, Inc. (NASDAQ:EXPO) a healthy stock for your portfolio? Hedge funds are getting less optimistic. The number of long hedge fund bets were cut by 3 lately. At the end of this article we will also compare EXPO to other stocks including Crestwood Midstream Partners LP (NYSE:CMLP), NovaGold Resources Inc. (USA) (NYSEMKT:NG), and Insmed Incorporated (NASDAQ:INSM) to get a better sense of its popularity.

At the moment there are dozens of formulas market participants use to evaluate their holdings. A pair of the most innovative formulas are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best hedge fund managers can outpace the S&P 500 by a significant margin (see the details here).

Keeping this in mind, let’s go over the recent action surrounding Exponent, Inc. (NASDAQ:EXPO).

What does the smart money think about Exponent, Inc. (NASDAQ:EXPO)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the number one position in Exponent, Inc. (NASDAQ:EXPO). Royce & Associates has a $30.5 million position in the stock, comprising 0.2% of its 13F portfolio. On Royce & Associates’s heels is Jim Simons’ Renaissance Technologies holding a $28.2 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish contain Paul Hondros’s AlphaOne Capital Partners, Cliff Asness’s AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Seeing as Exponent, Inc. (NASDAQ:EXPO) has witnessed falling interest from hedge fund managers, it’s safe to say that there exists a select few funds that elected to cut their full holdings last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $2.6 million in stock, and Chao Ku’s Nine Chapters Capital Management was right behind this move, as the fund sold off about $0.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Exponent, Inc. (NASDAQ:EXPO). We will take a look at Crestwood Midstream Partners LP (NYSE:CMLP), NovaGold Resources Inc. (USA) (NYSEMKT:NG), Insmed Incorporated (NASDAQ:INSM), and Eagle Pharmaceuticals Inc (NASDAQ:EGRX). This group of stocks’ market caps match EXPO’s market cap.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $68 million in EXPO’s case. NovaGold Resources Inc. (USA) (NYSEMKT:NG) is the most popular stock in this table. On the other hand Crestwood Midstream Partners LP (NYSE:CMLP) is the least popular one with only 6 bullish hedge fund positions. Exponent, Inc. (NASDAQ:EXPO) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NG might be a better candidate to consider a long position.