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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, 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 Summer Infant, Inc. (NASDAQ:SUMR).
Hedge fund interest in Summer Infant, Inc. (NASDAQ:SUMR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SUMR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 BK Technologies, Inc. (NYSE:BKTI), AMCON Distributing Co. (NYSE:DIT), and Great Elm Capital Corp. (NASDAQ:GECC) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
Nelson Obus of Wynnefield 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 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. Now let's view the fresh hedge fund action surrounding Summer Infant, Inc. (NASDAQ:SUMR).
How are hedge funds trading Summer Infant, Inc. (NASDAQ:SUMR)?
At the end of September, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in SUMR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Wynnefield Capital was the largest shareholder of Summer Infant, Inc. (NASDAQ:SUMR), with a stake worth $13.1 million reported as of the end of September. Trailing Wynnefield Capital was Plaisance Capital, which amassed a stake valued at $1.9 million. Renaissance Technologies was 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 Wynnefield Capital allocated the biggest weight to Summer Infant, Inc. (NASDAQ:SUMR), around 8.17% of its 13F portfolio. Plaisance Capital is also relatively very bullish on the stock, earmarking 3.04 percent of its 13F equity portfolio to SUMR.
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 also examine hedge fund activity in other stocks similar to Summer Infant, Inc. (NASDAQ:SUMR). We will take a look at BK Technologies, Inc. (NYSE:BKTI), AMCON Distributing Co. (NYSE:DIT), Great Elm Capital Corp. (NASDAQ:GECC), Beasley Broadcast Group Inc (NASDAQ:BBGI), Polar Power, Inc. (NASDAQ:POLA), Navios Maritime Containers L.P. (NASDAQ:NMCI), and U.S. Global Investors, Inc. (NASDAQ:GROW). All of these stocks' market caps are closest to SUMR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKTI,1,1959,0 DIT,1,705,0 GECC,5,654,1 BBGI,2,1495,0 POLA,2,1344,-1 NMCI,3,5793,0 GROW,5,5976,3 Average,2.7,2561,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.7 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $16 million in SUMR's case. Great Elm Capital Corp. (NASDAQ:GECC) is the most popular stock in this table. On the other hand BK Technologies, Inc. (NYSE:BKTI) is the least popular one with only 1 bullish hedge fund positions. Summer Infant, Inc. (NASDAQ:SUMR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SUMR is 45. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and beat the market again by 15.4 percentage points. Unfortunately SUMR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SUMR were disappointed as the stock returned 2.4% since the end of September (through 11/23) 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.
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Disclosure: None. This article was originally published at Insider Monkey.