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 S&W Seed Company (NASDAQ:SANW).
Hedge fund interest in S&W Seed Company (NASDAQ:SANW) 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 SANW to other stocks including Houston Wire & Cable Company (NASDAQ:HWCC), NantHealth, Inc. (NASDAQ:NH), and Entasis Therapeutics Holdings Inc. (NASDAQ:ETTX) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are viewed as worthless, old financial vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, We choose to focus on the masters of this group, approximately 750 funds. These investment experts watch over the majority of the smart money's total asset base, and by following their highest performing stock picks, Insider Monkey has identified a number of investment strategies that have historically outrun the broader indices. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_267751" align="aligncenter" width="450"] Nelson Obus of Wynnefield Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a look at the fresh hedge fund action encompassing S&W Seed Company (NASDAQ:SANW).
What have hedge funds been doing with S&W Seed Company (NASDAQ:SANW)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in SANW a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Michael Price's MFP Investors has the most valuable position in S&W Seed Company (NASDAQ:SANW), worth close to $37.9 million, amounting to 5.2% of its total 13F portfolio. The second largest stake is held by Nelson Obus of Wynnefield Capital, with a $10 million position; 5.3% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish contain Jeremy Carton and Gilbert Li's Alta Fundamental Advisers, Daniel Beltzman and Gergory Smith's Birch Run Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Wynnefield Capital allocated the biggest weight to S&W Seed Company (NASDAQ:SANW), around 5.35% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, dishing out 5.25 percent of its 13F equity portfolio to SANW.
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 now review hedge fund activity in other stocks similar to S&W Seed Company (NASDAQ:SANW). These stocks are Houston Wire & Cable Company (NASDAQ:HWCC), NantHealth, Inc. (NASDAQ:NH), Entasis Therapeutics Holdings Inc. (NASDAQ:ETTX), and Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS). This group of stocks' market values match SANW's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HWCC,7,17580,2 NH,7,699,2 ETTX,2,8151,0 SHOS,7,25475,-1 Average,5.75,12976,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $50 million in SANW's case. Houston Wire & Cable Company (NASDAQ:HWCC) is the most popular stock in this table. On the other hand Entasis Therapeutics Holdings Inc. (NASDAQ:ETTX) is the least popular one with only 2 bullish hedge fund positions. S&W Seed Company (NASDAQ:SANW) 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 SANW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SANW were disappointed as the stock returned -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.