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Plexus Corp. (PLXS): Hedge Funds Cashed Out Too Early

Abigail Fisher

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 24.4% during the first 9 months of 2019 and outperformed the S&P 500 ETF by 4 percentage points. We are done processing the latest 13f filings and in this article we will study how hedge fund sentiment towards Plexus Corp. (NASDAQ:PLXS) changed during the first quarter.

Is Plexus Corp. (NASDAQ:PLXS) a good investment right now? The smart money is getting less optimistic. The number of bullish hedge fund positions went down by 1 recently. Our calculations also showed that PLXS isn't among the 30 most popular stocks among hedge funds (see the video below). PLXS was in 8 hedge funds' portfolios at the end of June. There were 9 hedge funds in our database with PLXS holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

PLXS_oct2019
PLXS_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the recent hedge fund action regarding Plexus Corp. (NASDAQ:PLXS).

How are hedge funds trading Plexus Corp. (NASDAQ:PLXS)?

Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PLXS over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Millennium Management, Catapult Capital Management
Millennium Management, Catapult Capital Management

More specifically, Fisher Asset Management was the largest shareholder of Plexus Corp. (NASDAQ:PLXS), with a stake worth $40.3 million reported as of the end of March. Trailing Fisher Asset Management was D E Shaw, which amassed a stake valued at $3.7 million. Citadel Investment Group, Two Sigma Advisors, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Plexus Corp. (NASDAQ:PLXS) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few money managers that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Chuck Royce's Royce & Associates cut the largest position of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $2.3 million in stock. Charles Davidson and Joseph Jacobs's fund, Wexford Capital, also sold off its stock, about $0.6 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds by the end of the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Plexus Corp. (NASDAQ:PLXS) but similarly valued. These stocks are Magellan Health Inc (NASDAQ:MGLN), Pacira BioSciences, Inc. (NASDAQ:PCRX), Avon Products, Inc. (NYSE:AVP), and Columbia Financial, Inc. (NASDAQ:CLBK). This group of stocks' market caps are similar to PLXS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGLN,19,379621,-2 PCRX,28,582687,1 AVP,18,310922,-4 CLBK,12,33342,4 Average,19.25,326643,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $327 million. That figure was $51 million in PLXS's case. Pacira BioSciences, Inc. (NASDAQ:PCRX) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Plexus Corp. (NASDAQ:PLXS) is even less popular than CLBK. Hedge funds clearly dropped the ball on PLXS as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on PLXS as the stock returned 7.1% during the third quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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