At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards S&W Seed Company (NASDAQ:SANW).
S&W Seed Company (NASDAQ:SANW) investors should be aware of a decrease in hedge fund sentiment of late. SANW was in 5 hedge funds' portfolios at the end of the first quarter of 2020. There were 6 hedge funds in our database with SANW holdings at the end of the previous quarter. Our calculations also showed that SANW 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_758440" align="aligncenter" width="400"] Michael Price of MFP Investors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the latest hedge fund action encompassing S&W Seed Company (NASDAQ:SANW).
What have hedge funds been doing with S&W Seed Company (NASDAQ:SANW)?
At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SANW over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in S&W Seed Company (NASDAQ:SANW) was held by MFP Investors, which reported holding $32.8 million worth of stock at the end of September. It was followed by Wynnefield Capital with a $8.8 million position. Other investors bullish on the company included Alta Fundamental Advisers, Birch Run Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Wynnefield Capital allocated the biggest weight to S&W Seed Company (NASDAQ:SANW), around 8.31% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, setting aside 6.64 percent of its 13F equity portfolio to SANW.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Emancipation Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SANW as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks similar to S&W Seed Company (NASDAQ:SANW). These stocks are Magal Security Systems Ltd. (NASDAQ:MAGS), Universal Stainless & Alloy Products (NASDAQ:USAP), Sundial Growers Inc. (NASDAQ:SNDL), and CTI Biopharma Corp. (NASDAQ:CTIC). This group of stocks' market values are closest to SANW's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAGS,2,1886,0 USAP,6,12894,0 SNDL,4,1465,0 CTIC,8,23129,3 Average,5,9844,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $43 million in SANW's case. CTI Biopharma Corp. (NASDAQ:CTIC) is the most popular stock in this table. On the other hand Magal Security Systems Ltd. (NASDAQ:MAGS) is the least popular one with only 2 bullish hedge fund positions. S&W Seed Company (NASDAQ:SANW) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately SANW wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SANW investors were disappointed as the stock returned 3.9% during the second quarter 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 in 2020.
Disclosure: None. This article was originally published at Insider Monkey.