How do we determine whether Wayside Technology Group, Inc. (NASDAQ:WSTG) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Wayside Technology Group, Inc. (NASDAQ:WSTG) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 2 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Novan, Inc. (NASDAQ:NOVN), Quintana Energy Services Inc. (NYSE:QES), and Lonestar Resources US Inc. (NASDAQ:LONE) to gather more data points. Our calculations also showed that WSTG isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26073" align="aligncenter" width="600"] Jim Simons of RENAISSANCE TECHNOLOGIES[/caption]
We're going to review the fresh hedge fund action encompassing Wayside Technology Group, Inc. (NASDAQ:WSTG).
Hedge fund activity in Wayside Technology Group, Inc. (NASDAQ:WSTG)
Heading into the fourth quarter of 2019, a total of 2 of the hedge funds tracked by Insider Monkey held long positions in this stock, the same as the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in WSTG a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the largest position in Wayside Technology Group, Inc. (NASDAQ:WSTG). Renaissance Technologies has a $4.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is Parsa Kiai of Steamboat Capital Partners, with a $0.6 million position; the fund has 0.2% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Steamboat Capital Partners allocated the biggest weight to Wayside Technology Group, Inc. (NASDAQ:WSTG), around 0.17% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0036 percent of its 13F equity portfolio to WSTG.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's check out hedge fund activity in other stocks similar to Wayside Technology Group, Inc. (NASDAQ:WSTG). We will take a look at Novan, Inc. (NASDAQ:NOVN), Quintana Energy Services Inc. (NYSE:QES), Lonestar Resources US Inc. (NASDAQ:LONE), and Sharps Compliance Corp. (NASDAQ:SMED). This group of stocks' market caps match WSTG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOVN,3,696,2 QES,3,6899,0 LONE,4,12152,-1 SMED,1,2013,0 Average,2.75,5440,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $5 million in WSTG's case. Lonestar Resources US Inc. (NASDAQ:LONE) is the most popular stock in this table. On the other hand Sharps Compliance Corp. (NASDAQ:SMED) is the least popular one with only 1 bullish hedge fund positions. Wayside Technology Group, Inc. (NASDAQ:WSTG) 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately WSTG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WSTG investors were disappointed as the stock returned -6.5% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.