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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Seneca Foods Corp (NASDAQ:SENEA).
Seneca Foods Corp (NASDAQ:SENEA) has experienced an increase in enthusiasm from smart money in recent months. SENEA was in 5 hedge funds' portfolios at the end of the third quarter of 2019. There were 3 hedge funds in our database with SENEA holdings at the end of the previous quarter. Our calculations also showed that SENEA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 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.
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Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a look at the latest hedge fund action encompassing Seneca Foods Corp (NASDAQ:SENEA).
Hedge fund activity in Seneca Foods Corp (NASDAQ:SENEA)
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in SENEA a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the number one position in Seneca Foods Corp (NASDAQ:SENEA). Royce & Associates has a $13.1 million position in the stock, comprising 0.1% of its 13F portfolio. Renaissance Technologies, with a $2.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism comprise John Overdeck and David Siegel's Two Sigma Advisors, Paul J. Isaac's Arbiter Partners Capital Management and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Seneca Foods Corp (NASDAQ:SENEA), around 0.12% of its 13F portfolio. Arbiter Partners Capital Management is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to SENEA.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the biggest position in Seneca Foods Corp (NASDAQ:SENEA). Two Sigma Advisors had $0.2 million invested in the company at the end of the quarter. Paul J. Isaac's Arbiter Partners Capital Management also made a $0.2 million investment in the stock during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Seneca Foods Corp (NASDAQ:SENEA) but similarly valued. These stocks are OptiNose, Inc. (NASDAQ:OPTN), Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH), Drive Shack Inc. (NYSE:DS), and NeoPhotonics Corp (NYSE:NPTN). All of these stocks' market caps are closest to SENEA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OPTN,8,12280,2 TTPH,2,934,-7 DS,5,5852,-3 NPTN,20,52277,3 Average,8.75,17836,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $16 million in SENEA's case. NeoPhotonics Corp (NYSE:NPTN) is the most popular stock in this table. On the other hand Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH) is the least popular one with only 2 bullish hedge fund positions. Seneca Foods Corp (NASDAQ:SENEA) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on SENEA as the stock returned 25.4% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.