While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Sterling Construction Company, Inc. (NASDAQ:STRL).
Hedge fund interest in Sterling Construction Company, Inc. (NASDAQ:STRL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare STRL to other stocks including Abraxas Petroleum Corp. (NASDAQ:AXAS), Accuray Incorporated (NASDAQ:ARAY), and Pensare Acquisition Corp. (NASDAQ:WRLS) to get a better sense of its popularity.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the key hedge fund action regarding Sterling Construction Company, Inc. (NASDAQ:STRL).
What does the smart money think about Sterling Construction Company, Inc. (NASDAQ:STRL)?
Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, representing no change from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in STRL over the last 13 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 considerably (or already accumulated large positions).
The largest stake in Sterling Construction Company, Inc. (NASDAQ:STRL) was held by Renaissance Technologies, which reported holding $29 million worth of stock at the end of September. It was followed by AlphaOne Capital Partners with a $6.4 million position. Other investors bullish on the company included Royce & Associates, Driehaus Capital, and Millennium Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Balyasny Asset Management. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).
Let's check out hedge fund activity in other stocks similar to Sterling Construction Company, Inc. (NASDAQ:STRL). We will take a look at Abraxas Petroleum Corp. (NASDAQ:AXAS), Accuray Incorporated (NASDAQ:ARAY), Pensare Acquisition Corp. (NASDAQ:WRLS), and Village Super Market, Inc. (NASDAQ:VLGEA). This group of stocks' market caps match STRL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXAS,10,39623,-5 ARAY,17,66381,2 WRLS,14,44660,0 VLGEA,5,52076,-2 Average,11.5,50685,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $60 million in STRL's case. Accuray Incorporated (NASDAQ:ARAY) is the most popular stock in this table. On the other hand Village Super Market, Inc. (NASDAQ:VLGEA) is the least popular one with only 5 bullish hedge fund positions. Sterling Construction Company, Inc. (NASDAQ:STRL) 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. In this regard ARAY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.