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Did Hedge Funds Drop The Ball On Exponent, Inc. (EXPO) ?

Reymerlyn Martin

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Exponent, Inc. (NASDAQ:EXPO).

Exponent, Inc. (NASDAQ:EXPO) has experienced a decrease in enthusiasm from smart money in recent months. Our calculations also showed that EXPO isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Andrew Sandler

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the new hedge fund action encompassing Exponent, Inc. (NASDAQ:EXPO).

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

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXPO over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

EXPO_oct2019

More specifically, Renaissance Technologies was the largest shareholder of Exponent, Inc. (NASDAQ:EXPO), with a stake worth $34.4 million reported as of the end of March. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $18.6 million. Sandler Capital Management, Winton Capital Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Since Exponent, Inc. (NASDAQ:EXPO) has witnessed falling interest from the smart money, it's easy to see that there were a few hedge funds that elected to cut their entire stakes heading into Q3. It's worth mentioning that Ian Cumming and Joseph Steinberg's Leucadia National sold off the largest investment of the "upper crust" of funds watched by Insider Monkey, totaling close to $1 million in stock. Brandon Haley's fund, Holocene Advisors, also dumped its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q3.

Let's now review hedge fund activity in other stocks similar to Exponent, Inc. (NASDAQ:EXPO). These stocks are Everbridge, Inc. (NASDAQ:EVBG), Proto Labs Inc (NYSE:PRLB), Solaredge Technologies Inc (NASDAQ:SEDG), and NuVasive, Inc. (NASDAQ:NUVA). This group of stocks' market caps are closest to EXPO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVBG,28,537005,-2 PRLB,9,22516,-2 SEDG,23,145921,1 NUVA,24,267479,4 Average,21,243230,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $108 million in EXPO's case. Everbridge, Inc. (NASDAQ:EVBG) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 9 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on EXPO as the stock returned 19.7% during the same time frame and outperformed the market by an even larger margin.

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

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