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Did Hedge Funds Make The Right Call On Exponent, Inc. (EXPO) ?

Asma UL Husna
·6 mins read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Exponent, Inc. (NASDAQ:EXPO) and determine whether hedge funds had an edge regarding this stock.

Hedge fund interest in Exponent, Inc. (NASDAQ:EXPO) 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 Skechers USA Inc (NYSE:SKX), SYNNEX Corporation (NYSE:SNX), and MAXIMUS, Inc. (NYSE:MMS) to gather more data points. Our calculations also showed that EXPO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we're going to review the recent hedge fund action surrounding Exponent, Inc. (NASDAQ:EXPO).

What have hedge funds been doing with Exponent, Inc. (NASDAQ:EXPO)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EXPO over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Exponent, Inc. (NASDAQ:EXPO) was held by Renaissance Technologies, which reported holding $37.6 million worth of stock at the end of September. It was followed by Millennium Management with a $15.2 million position. Other investors bullish on the company included Royce & Associates, Citadel Investment Group, and Winton Capital Management. In terms of the portfolio weights assigned to each position Sandler Capital Management allocated the biggest weight to Exponent, Inc. (NASDAQ:EXPO), around 1.16% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.32 percent of its 13F equity portfolio to EXPO.

Judging by the fact that Exponent, Inc. (NASDAQ:EXPO) has witnessed falling interest from hedge fund managers, it's safe to say that there were a few hedgies that decided to sell off their entire stakes in the first quarter. Intriguingly, Michael Kharitonov and Jon David McAuliffe's Voleon Capital cut the largest stake of the 750 funds monitored by Insider Monkey, totaling an estimated $1.3 million in stock. Qing Li's fund, Sciencast Management, also dumped its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to Exponent, Inc. (NASDAQ:EXPO). These stocks are Skechers USA Inc (NYSE:SKX), SYNNEX Corporation (NYSE:SNX), MAXIMUS, Inc. (NYSE:MMS), and PS Business Parks Inc (NYSE:PSB). This group of stocks' market valuations are closest to EXPO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKX,26,485573,-4 SNX,24,263748,2 MMS,26,132535,2 PSB,17,83370,2 Average,23.25,241307,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $121 million in EXPO's case. Skechers USA Inc (NYSE:SKX) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Exponent, Inc. (NASDAQ:EXPO) is even less popular than PSB. Hedge funds dodged a bullet by taking a bearish stance towards EXPO. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. Unfortunately EXPO wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); EXPO investors were disappointed as the stock returned 12.6% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.

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