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. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Park Aerospace Corp. (NYSE:PKE).
Park Aerospace Corp. (NYSE:PKE) has seen an increase in activity from the world's largest hedge funds of late. Our calculations also showed that PKE 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_338410" align="aligncenter" width="500"] Jeffrey Bronchick of Cove Street Capital[/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 look at the new hedge fund action encompassing Park Aerospace Corp. (NYSE:PKE).
How have hedgies been trading Park Aerospace Corp. (NYSE:PKE)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PKE over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Raging Capital Management held the most valuable stake in Park Aerospace Corp. (NYSE:PKE), which was worth $32.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $26.8 million worth of shares. GAMCO Investors, Winton Capital Management, 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 Raging Capital Management allocated the biggest weight to Park Aerospace Corp. (NYSE:PKE), around 5.31% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, earmarking 1.38 percent of its 13F equity portfolio to PKE.
As aggregate interest increased, key hedge funds have been driving this bullishness. Winton Capital Management, managed by David Harding, created the largest position in Park Aerospace Corp. (NYSE:PKE). Winton Capital Management had $2.3 million invested in the company at the end of the quarter. C. Jonathan Gattman's Cloverdale Capital Management also made a $2 million investment in the stock during the quarter. The following funds were also among the new PKE investors: Jeffrey Bronchick's Cove Street Capital, Paul Marshall and Ian Wace's Marshall Wace, and Chuck Royce's Royce & Associates.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Park Aerospace Corp. (NYSE:PKE) but similarly valued. These stocks are American Public Education, Inc. (NASDAQ:APEI), Just Energy Group, Inc. (NYSE:JE), Vista Outdoor Inc (NYSE:VSTO), and EZCORP Inc (NASDAQ:EZPW). This group of stocks' market valuations match PKE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APEI,14,56912,1 JE,8,32204,-5 VSTO,14,68721,-2 EZPW,18,81131,-3 Average,13.5,59742,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $82 million in PKE's case. EZCORP Inc (NASDAQ:EZPW) is the most popular stock in this table. On the other hand Just Energy Group, Inc. (NYSE:JE) is the least popular one with only 8 bullish hedge fund positions. Park Aerospace Corp. (NYSE:PKE) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PKE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PKE investors were disappointed as the stock returned -7.1% during the first two months of the fourth quarter 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.