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Is Gladstone Investment Corporation (GAIN) A Good Stock To Buy?

Abigail Fisher

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Gladstone Investment Corporation (NASDAQ:GAIN) based on that data.

Gladstone Investment Corporation (NASDAQ:GAIN) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds' portfolios at the end of the first quarter of 2020. 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 Ocular Therapeutix Inc (NASDAQ:OCUL), National CineMedia, Inc. (NASDAQ:NCMI), and Ooma Inc (NYSE:OOMA) to gather more data points. Our calculations also showed that GAIN 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.

To the average investor there are numerous methods shareholders employ to size up their stock investments. Two of the most useful methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top investment managers can beat the broader indices by a superb amount (see the details here).

[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]

TUDOR INVESTMENT CORP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to go over the new hedge fund action surrounding Gladstone Investment Corporation (NASDAQ:GAIN).

What does smart money think about Gladstone Investment Corporation (NASDAQ:GAIN)?

At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in GAIN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Marshall Wace LLP was the largest shareholder of Gladstone Investment Corporation (NASDAQ:GAIN), with a stake worth $2 million reported as of the end of September. Trailing Marshall Wace LLP was Arrowstreet Capital, which amassed a stake valued at $1.6 million. Two Sigma Advisors, Driehaus Capital, and Citadel Investment Group 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 Marshall Wace LLP allocated the biggest weight to Gladstone Investment Corporation (NASDAQ:GAIN), around 0.02% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to GAIN.

Because Gladstone Investment Corporation (NASDAQ:GAIN) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedgies who sold off their entire stakes in the first quarter. At the top of the heap, Michael Gelband's ExodusPoint Capital cut the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $1.1 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund cut about $0.2 million worth. These moves are important to note, as total 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 Gladstone Investment Corporation (NASDAQ:GAIN). We will take a look at Ocular Therapeutix Inc (NASDAQ:OCUL), National CineMedia, Inc. (NASDAQ:NCMI), Ooma Inc (NYSE:OOMA), and Kamada Ltd (NASDAQ:KMDA). All of these stocks' market caps are similar to GAIN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCUL,7,38905,-2 NCMI,14,23599,1 OOMA,14,69276,1 KMDA,2,6276,-1 Average,9.25,34514,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $6 million in GAIN's case. National CineMedia, Inc. (NASDAQ:NCMI) is the most popular stock in this table. On the other hand Kamada Ltd (NASDAQ:KMDA) is the least popular one with only 2 bullish hedge fund positions. Gladstone Investment Corporation (NASDAQ:GAIN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on GAIN as the stock returned 40.6% during the second quarter and outperformed the market by an even larger margin.

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

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