Should You Buy Smith Micro Software, Inc. (SMSI)?

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. However, 63% of hedge funds’ top 30 stock picks from the index did beat the market, and returned nearly twice as much on average as the index. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Smith Micro Software, Inc. (NASDAQ:SMSI) has seen an increase in enthusiasm from smart money of late. SMSI was in 5 hedge funds’ portfolios at the end of September. There were 4 hedge funds in our database with SMSI holdings at the end of the previous quarter. 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 The First Marblehead Corporation (NYSE:FMD), GenVec, Inc. (NASDAQ:GNVC), and Novacopper Inc (NYSEAMEX:NCQ) to gather more data points.

Keeping this in mind, let’s take a gander at the recent action regarding Smith Micro Software, Inc. (NASDAQ:SMSI).

What have hedge funds been doing with Smith Micro Software, Inc. (NASDAQ:SMSI)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Diker Management, managed by Mark N. Diker, holds the largest position in Smith Micro Software, Inc. (NASDAQ:SMSI). Diker Management has a $3.8 million position in the stock, comprising 0.8% of its 13F portfolio. On Diker Management’s heels is Renaissance Technologies, managed by Jim Simons, which holds a $0.6 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish include Chuck Royce’s Royce & Associates, Ken Grossman and Glen Schneider’s SG Capital Management and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

As aggregate interest increased, key money managers have been driving this bullishness. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, initiated the most outsized position in Smith Micro Software, Inc. (NASDAQ:SMSI). Algert Coldiron Investors had $0.1 million invested in the company at the end of the quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Smith Micro Software, Inc. (NASDAQ:SMSI) but similarly valued. These stocks are The First Marblehead Corporation (NYSE:FMD), GenVec, Inc. (NASDAQ:GNVC), Novacopper Inc (NYSEAMEX:NCQ), and LiqTech International Inc (NYSEMKT:LIQT). This group of stocks’ market values are similar to SMSI’s market value.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $5 million in SMSI’s case. Novacopper Inc (NYSEAMEX:NCQ) is the most popular stock in this table. On the other hand The First Marblehead Corporation (NYSE:FMD) is the least popular one with only 4 bullish hedge fund positions. Smith Micro Software, Inc. (NASDAQ:SMSI) 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 NCQ might be a better candidate to consider a long position.