How do we determine whether Motorcar Parts of America, Inc. (NASDAQ:MPAA) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Motorcar Parts of America, Inc. (NASDAQ:MPAA) investors should be aware of a decrease in enthusiasm from smart money recently. MPAA was in 8 hedge funds' portfolios at the end of September. There were 13 hedge funds in our database with MPAA positions at the end of the previous quarter. Our calculations also showed that MPAA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Richard S. Pzena of Pzena Investment Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the new hedge fund action surrounding Motorcar Parts of America, Inc. (NASDAQ:MPAA).
Hedge fund activity in Motorcar Parts of America, Inc. (NASDAQ:MPAA)
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MPAA over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Private Capital Management was the largest shareholder of Motorcar Parts of America, Inc. (NASDAQ:MPAA), with a stake worth $26.7 million reported as of the end of September. Trailing Private Capital Management was Pzena Investment Management, which amassed a stake valued at $19.8 million. Rutabaga Capital Management, Fine Capital Partners, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to Motorcar Parts of America, Inc. (NASDAQ:MPAA), around 4.64% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, earmarking 2.84 percent of its 13F equity portfolio to MPAA.
Due to the fact that Motorcar Parts of America, Inc. (NASDAQ:MPAA) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few funds who sold off their entire stakes in the third quarter. At the top of the heap, Ken Griffin's Citadel Investment Group said goodbye to the largest position of the "upper crust" of funds followed by Insider Monkey, totaling about $1.1 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also said goodbye to its stock, about $0.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Motorcar Parts of America, Inc. (NASDAQ:MPAA) but similarly valued. These stocks are Sientra Inc (NASDAQ:SIEN), Howard Bancorp Inc (NASDAQ:HBMD), Red River Bancshares, Inc. (NASDAQ:RRBI), and Landec Corporation (NASDAQ:LNDC). This group of stocks' market caps are similar to MPAA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIEN,16,103194,-3 HBMD,3,16817,1 RRBI,3,5155,0 LNDC,13,46350,2 Average,8.75,42879,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $61 million in MPAA's case. Sientra Inc (NASDAQ:SIEN) is the most popular stock in this table. On the other hand Howard Bancorp Inc (NASDAQ:HBMD) is the least popular one with only 3 bullish hedge fund positions. Motorcar Parts of America, Inc. (NASDAQ:MPAA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on MPAA as the stock returned 15.4% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.