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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 Mitek Systems, Inc. (NASDAQ:MITK) and determine whether hedge funds had an edge regarding this stock.
Mitek Systems, Inc. (NASDAQ:MITK) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. Mitek Systems, Inc. (NASDAQ:MITK) was in 19 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 21. Our calculations also showed that MITK isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
At the moment there are a multitude of tools stock market investors employ to appraise stocks. A duo of the less utilized tools are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can trounce the market by a solid margin (see the details here).
Matthew Hulsizer of PEAK6 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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we're going to take a look at the key hedge fund action surrounding Mitek Systems, Inc. (NASDAQ:MITK).
What does smart money think about Mitek Systems, Inc. (NASDAQ:MITK)?
At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MITK over the last 20 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Toronado Partners held the most valuable stake in Mitek Systems, Inc. (NASDAQ:MITK), which was worth $27.5 million at the end of the third quarter. On the second spot was Blue Grotto Capital which amassed $14.3 million worth of shares. Archon Capital Management, Renaissance Technologies, and Cloverdale Capital Management 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 Blue Grotto Capital allocated the biggest weight to Mitek Systems, Inc. (NASDAQ:MITK), around 9.13% of its 13F portfolio. Toronado Partners is also relatively very bullish on the stock, setting aside 7.18 percent of its 13F equity portfolio to MITK.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Mitek Systems, Inc. (NASDAQ:MITK). Arrowstreet Capital had $1.4 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt's Gotham Asset Management and Matthew Hulsizer's PEAK6 Capital Management.
Let's also examine hedge fund activity in other stocks similar to Mitek Systems, Inc. (NASDAQ:MITK). These stocks are Koppers Holdings Inc. (NYSE:KOP), Gladstone Investment Corporation (NASDAQ:GAIN), Repro Med Systems, Inc. (NASDAQ:KRMD), Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), Dorian LPG Ltd (NYSE:LPG), iClick Interactive Asia Group Limited (NASDAQ:ICLK), and Zix Corporation (NASDAQ:ZIXI). This group of stocks' market caps are similar to MITK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KOP,11,17471,-1 GAIN,5,4297,-3 KRMD,15,21741,5 SPPI,10,20008,2 LPG,15,89850,-2 ICLK,4,12038,2 ZIXI,16,33761,1 Average,10.9,28452,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.9 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $77 million in MITK's case. Zix Corporation (NASDAQ:ZIXI) is the most popular stock in this table. On the other hand iClick Interactive Asia Group Limited (NASDAQ:ICLK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Mitek Systems, Inc. (NASDAQ:MITK) is more popular among hedge funds. Our overall hedge fund sentiment score for MITK is 84.1. 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. 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 returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on MITK as the stock returned 32.6% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.