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Is SIMO A Good Stock To Buy Now?

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·6 min read
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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Silicon Motion Technology Corp. (NASDAQ:SIMO) to find out whether there were any major changes in hedge funds' views.

Is SIMO a good stock to buy now? Silicon Motion Technology Corp. (NASDAQ:SIMO) investors should be aware of a decrease in hedge fund sentiment lately. Silicon Motion Technology Corp. (NASDAQ:SIMO) was in 15 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 29. Our calculations also showed that SIMO 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most investors, hedge funds are viewed as worthless, old financial tools of the past. While there are greater than 8000 funds trading at present, Our experts choose to focus on the masters of this group, around 850 funds. These money managers manage bulk of the smart money's total capital, and by tracking their top equity investments, Insider Monkey has revealed various investment strategies that have historically outperformed the broader indices. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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. Now let's take a glance at the fresh hedge fund action surrounding Silicon Motion Technology Corp. (NASDAQ:SIMO).

Do Hedge Funds Think SIMO Is A Good Stock To Buy Now?

At the end of September, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in SIMO a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is SIMO A Good Stock To Buy?
Is SIMO A Good Stock To Buy?

Among these funds, Cardinal Capital held the most valuable stake in Silicon Motion Technology Corp. (NASDAQ:SIMO), which was worth $76 million at the end of the third quarter. On the second spot was Yiheng Capital which amassed $74.8 million worth of shares. Two Sigma Advisors, Renaissance Technologies, and Marshall Wace LLP 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 Yiheng Capital allocated the biggest weight to Silicon Motion Technology Corp. (NASDAQ:SIMO), around 4.5% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, designating 3.17 percent of its 13F equity portfolio to SIMO.

Because Silicon Motion Technology Corp. (NASDAQ:SIMO) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few hedge funds who sold off their positions entirely in the third quarter. At the top of the heap, Noam Gottesman's GLG Partners said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at about $16.7 million in stock. Richard Driehaus's fund, Driehaus Capital, also cut its stock, about $15.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Silicon Motion Technology Corp. (NASDAQ:SIMO) but similarly valued. These stocks are Hercules Capital Inc (NYSE:HTGC), NIC Inc. (NASDAQ:EGOV), Itau CorpBanca (NYSE:ITCB), Colony Capital Inc (NYSE:CLNY), M/I Homes Inc (NYSE:MHO), Livent Corporation (NYSE:LTHM), and The Providence Service Corporation (NASDAQ:PRSC). This group of stocks' market caps resemble SIMO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTGC,13,42715,-2 EGOV,14,95062,-2 ITCB,1,1163,0 CLNY,24,188771,8 MHO,18,115813,3 LTHM,20,61214,1 PRSC,15,320755,3 Average,15,117928,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $216 million in SIMO's case. Colony Capital Inc (NYSE:CLNY) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Silicon Motion Technology Corp. (NASDAQ:SIMO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SIMO is 49. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on SIMO as the stock returned 21.9% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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

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