In this article we will check out the progression of hedge fund sentiment towards Encore Wire Corporation (NASDAQ:WIRE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Encore Wire Corporation (NASDAQ:WIRE) was in 19 hedge funds' portfolios at the end of March. The all time high for this statistic is 22. WIRE has seen an increase in support from the world's most elite money managers of late. There were 16 hedge funds in our database with WIRE holdings at the end of December. Our calculations also showed that WIRE isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Israel Englander of Millennium Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to check out the new hedge fund action regarding Encore Wire Corporation (NASDAQ:WIRE).
Do Hedge Funds Think WIRE Is A Good Stock To Buy Now?
At the end of March, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WIRE over the last 23 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Chuck Royce's Royce & Associates has the biggest position in Encore Wire Corporation (NASDAQ:WIRE), worth close to $30.5 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Charles Paquelet of Skylands Capital, with a $10.2 million position; 1.3% of its 13F portfolio is allocated to the company. Some other peers that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, J. Carlo Cannell's Cannell Capital and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to Encore Wire Corporation (NASDAQ:WIRE), around 1.61% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, earmarking 1.29 percent of its 13F equity portfolio to WIRE.
As aggregate interest increased, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, created the biggest position in Encore Wire Corporation (NASDAQ:WIRE). Millennium Management had $4.5 million invested in the company at the end of the quarter. Renaissance Technologies also made a $2.7 million investment in the stock during the quarter. The other funds with brand new WIRE positions are Michael Gelband's ExodusPoint Capital, Roger Ibbotson's Zebra Capital Management, and Dmitry Balyasny's Balyasny Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Encore Wire Corporation (NASDAQ:WIRE) but similarly valued. These stocks are Whiting Petroleum Corporation (NYSE:WLL), First Commonwealth Financial (NYSE:FCF), Middlesex Water Company (NASDAQ:MSEX), Nurix Therapeutics, Inc. (NASDAQ:NRIX), Raven Industries, Inc. (NASDAQ:RAVN), e.l.f. Beauty, Inc. (NYSE:ELF), and Calavo Growers, Inc. (NASDAQ:CVGW). All of these stocks' market caps are similar to WIRE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WLL,21,223784,5 FCF,13,21078,1 MSEX,8,58560,3 NRIX,17,302452,6 RAVN,16,98313,2 ELF,21,138769,-8 CVGW,9,64050,-1 Average,15,129572,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $81 million in WIRE's case. Whiting Petroleum Corporation (NYSE:WLL) is the most popular stock in this table. On the other hand Middlesex Water Company (NASDAQ:MSEX) is the least popular one with only 8 bullish hedge fund positions. Encore Wire Corporation (NASDAQ:WIRE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WIRE is 76.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately WIRE wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WIRE were disappointed as the stock returned 2.1% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.