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With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Pixelworks, Inc. (NASDAQ:PXLW).
Is PXLW a good stock to buy now? Hedge fund interest in Pixelworks, Inc. (NASDAQ:PXLW) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PXLW 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 Manitex International, Inc. (NASDAQ:MNTX), American Virtual Cloud Technologies, Inc. (NASDAQ:AVCT), and Mallinckrodt Public Limited Company (NYSE:MNK) to gather more data points.
Video: 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 S&P 500 ETFs by more than 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. 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.
Cliff Asness of AQR Capital Management
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 15 best blue chip stocks 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. With all of this in mind let's take a glance at the fresh hedge fund action regarding Pixelworks, Inc. (NASDAQ:PXLW).
Do Hedge Funds Think PXLW Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in PXLW a year ago. With hedgies' capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Pixelworks, Inc. (NASDAQ:PXLW), which was worth $3.6 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $0.5 million worth of shares. D E Shaw, Millennium Management, and Winton 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 Algert Coldiron Investors allocated the biggest weight to Pixelworks, Inc. (NASDAQ:PXLW), around 0.03% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, dishing out 0.004 percent of its 13F equity portfolio to PXLW.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. 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 AQR Capital Management).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Pixelworks, Inc. (NASDAQ:PXLW) but similarly valued. We will take a look at Manitex International, Inc. (NASDAQ:MNTX), American Virtual Cloud Technologies, Inc. (NASDAQ:AVCT), Mallinckrodt Public Limited Company (NYSE:MNK), First United Corp (NASDAQ:FUNC), Boxlight Corporation (NASDAQ:BOXL), Ur-Energy Inc. (NYSE:URG), and Beam Global (NASDAQ:BEEM). This group of stocks' market valuations are closest to PXLW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MNTX,6,8481,0 AVCT,2,1071,0 MNK,12,3417,-2 FUNC,4,3568,0 BOXL,1,1285,0 URG,3,2681,1 BEEM,5,8317,2 Average,4.7,4117,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.7 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $5 million in PXLW's case. Mallinckrodt Public Limited Company (NYSE:MNK) is the most popular stock in this table. On the other hand Boxlight Corporation (NASDAQ:BOXL) is the least popular one with only 1 bullish hedge fund positions. Pixelworks, Inc. (NASDAQ:PXLW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PXLW is 63.9. 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. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on PXLW as the stock returned 36.6% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.