We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Astro-Med, Inc. (NASDAQ:ALOT) has seen a decrease in enthusiasm from smart money of late. ALOT was in 6 hedge funds' portfolios at the end of September. There were 8 hedge funds in our database with ALOT holdings at the end of the previous quarter. Our calculations also showed that ALOT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26255" align="alignnone" width="600"] Louis Navellier of Navellier & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a gander at the new hedge fund action encompassing Astro-Med, Inc. (NASDAQ:ALOT).
What have hedge funds been doing with Astro-Med, Inc. (NASDAQ:ALOT)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the second quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in ALOT a year ago. 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).
Among these funds, Ariel Investments held the most valuable stake in Astro-Med, Inc. (NASDAQ:ALOT), which was worth $4.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $4.1 million worth of shares. Royce & Associates, Rutabaga Capital Management, and Millennium 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, Rutabaga Capital Management allocated the biggest weight to Astro-Med, Inc. (NASDAQ:ALOT), around 0.61% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to ALOT.
Because Astro-Med, Inc. (NASDAQ:ALOT) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that elected to cut their full holdings heading into Q4. Intriguingly, Louis Navellier's Navellier & Associates sold off the biggest investment of the 750 funds monitored by Insider Monkey, comprising about $0.7 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund sold off about $0.2 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Astro-Med, Inc. (NASDAQ:ALOT) but similarly valued. These stocks are EMX Royalty Corporation (NYSE:EMX), Eton Pharmaceutcials, Inc. (NASDAQ:ETON), Eagle Bancorp Montana Inc (NASDAQ:EBMT), and Mammoth Energy Services, Inc. (NASDAQ:TUSK). This group of stocks' market values resemble ALOT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EMX,2,7233,0 ETON,3,8860,0 EBMT,3,8924,0 TUSK,9,56496,0 Average,4.25,20378,0 [/table]
View the table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $15 million in ALOT's case. Mammoth Energy Services, Inc. (NASDAQ:TUSK) is the most popular stock in this table. On the other hand, EMX Royalty Corporation (NYSE:EMX) is the least popular one with only 2 bullish hedge fund positions. Astro-Med, Inc. (NASDAQ:ALOT) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately, ALOT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ALOT were disappointed as the stock returned -4.5% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.