Is ESCA A Good Stock To Buy Now?
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 Escalade, Inc. (NASDAQ:ESCA).
Is ESCA a good stock to buy now? Escalade, Inc. (NASDAQ:ESCA) investors should be aware of an increase in hedge fund interest recently. Escalade, Inc. (NASDAQ:ESCA) was in 9 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 8. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 8 hedge funds in our database with ESCA holdings at the end of June. Our calculations also showed that ESCA isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Gavin Saitowitz of Prelude Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now let's view the fresh hedge fund action encompassing Escalade, Inc. (NASDAQ:ESCA).
Do Hedge Funds Think ESCA Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in ESCA a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Minerva Advisors, managed by David P. Cohen, holds the most valuable position in Escalade, Inc. (NASDAQ:ESCA). Minerva Advisors has a $8.4 million position in the stock, comprising 5.7% of its 13F portfolio. Coming in second is Renaissance Technologies, with a $2.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Josh Goldberg's G2 Investment Partners Management, Mark Broach's Manatuck Hill Partners and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to Escalade, Inc. (NASDAQ:ESCA), around 5.66% of its 13F portfolio. Southport Management is also relatively very bullish on the stock, dishing out 2.08 percent of its 13F equity portfolio to ESCA.
As aggregate interest increased, some big names have jumped into Escalade, Inc. (NASDAQ:ESCA) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Escalade, Inc. (NASDAQ:ESCA). Arrowstreet Capital had $0.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new ESCA position is Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Escalade, Inc. (NASDAQ:ESCA) but similarly valued. We will take a look at InfuSystem Holdings, Inc. (NYSE:INFU), Invacare Corporation (NYSE:IVC), BBX Capital Corporation (NYSE:BBX), CECO Environmental Corp. (NASDAQ:CECE), RADA Electronic Industries Ltd. (NASDAQ:RADA), GasLog Ltd (NYSE:GLOG), and Citizens & Northern Corporation (NASDAQ:CZNC). All of these stocks' market caps resemble ESCA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFU,12,33703,6 IVC,17,60394,-1 BBX,9,17576,-2 CECE,10,48633,2 RADA,7,16874,0 GLOG,7,6550,-6 CZNC,4,3884,2 Average,9.4,26802,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.4 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $16 million in ESCA's case. Invacare Corporation (NYSE:IVC) is the most popular stock in this table. On the other hand Citizens & Northern Corporation (NASDAQ:CZNC) is the least popular one with only 4 bullish hedge fund positions. Escalade, Inc. (NASDAQ:ESCA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ESCA is 55.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately ESCA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESCA investors were disappointed as the stock returned 2.6% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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