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Is Rubicon Technology, Inc. (RBCN) A Good Stock To Buy ?

Reymerlyn Martin

Is Rubicon Technology, Inc. (NASDAQ:RBCN) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Rubicon Technology, Inc. (NASDAQ:RBCN) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of the third quarter of 2019. 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 IRIDEX Corporation (NASDAQ:IRIX), The Peck Company, Inc. (NASDAQ:PECK), and Image Sensing Systems, Inc. (NASDAQ:ISNS) to gather more data points. Our calculations also showed that RBCN isn't among the 30 most popular stocks among hedge funds.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_731890" align="aligncenter" width="600"] John Rogers of Ariel Investments[/caption]

John Rogers Ariel Investments

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the recent hedge fund action regarding Rubicon Technology, Inc. (NASDAQ:RBCN).

Hedge fund activity in Rubicon Technology, Inc. (NASDAQ:RBCN)

Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RBCN over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

RBCN_nov2019

The largest stake in Rubicon Technology, Inc. (NASDAQ:RBCN) was held by Bandera Partners, which reported holding $2.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $1.2 million position. The only other hedge fund that is bullish on the company was Ariel Investments.

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 check out hedge fund activity in other stocks similar to Rubicon Technology, Inc. (NASDAQ:RBCN). These stocks are IRIDEX Corporation (NASDAQ:IRIX), The Peck Company Holdings, Inc. (NASDAQ:PECK), Image Sensing Systems, Inc. (NASDAQ:ISNS), and Superior Drilling Products, Inc. (NYSE:SDPI). This group of stocks' market caps are similar to RBCN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRIX,1,813,-1 PECK,1,153,0 ISNS,1,964,0 SDPI,1,477,-1 Average,1,602,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 1 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $5 million in RBCN's case. IRIDEX Corporation (NASDAQ:IRIX) is the most popular stock in this table. On the other hand IRIDEX Corporation (NASDAQ:IRIX) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Rubicon Technology, Inc. (NASDAQ:RBCN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately RBCN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RBCN were disappointed as the stock returned -14.7% during the fourth quarter (through 11/22) 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.

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