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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Simulations Plus, Inc. (NASDAQ:SLP), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is SLP a good stock to buy now? Prominent investors were getting more optimistic. The number of bullish hedge fund positions increased by 1 in recent months. Simulations Plus, Inc. (NASDAQ:SLP) was in 10 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 14. Our calculations also showed that SLP 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). There were 9 hedge funds in our database with SLP holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates LP
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. Keeping this in mind we're going to analyze the key hedge fund action encompassing Simulations Plus, Inc. (NASDAQ:SLP).
Do Hedge Funds Think Simulations Plus, Inc. (NASDAQ:SLP) Is A Good Stock To Buy Now?
At third quarter's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the second quarter of 2020. By comparison, 14 hedge funds held shares or bullish call options in SLP a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Simulations Plus, Inc. (NASDAQ:SLP) was held by Royce & Associates, which reported holding $21.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $8.2 million position. Other investors bullish on the company included GLG Partners, PEAK6 Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Simulations Plus, Inc. (NASDAQ:SLP), around 1.25% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to SLP.
As aggregate interest increased, some big names have been driving this bullishness. GLG Partners, managed by Noam Gottesman, assembled the most valuable position in Simulations Plus, Inc. (NASDAQ:SLP). GLG Partners had $7.2 million invested in the company at the end of the quarter. Bruce Kovner's Caxton Associates LP also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new SLP position is Joel Greenblatt's Gotham Asset Management.
Let's now review hedge fund activity in other stocks similar to Simulations Plus, Inc. (NASDAQ:SLP). We will take a look at Azul S.A. (NYSE:AZUL), SkyWest, Inc. (NASDAQ:SKYW), Zealand Pharma A/S (NASDAQ:ZEAL), Air Transport Services Group Inc. (NASDAQ:ATSG), Addus Homecare Corporation (NASDAQ:ADUS), Virtusa Corporation (NASDAQ:VRTU), and Kronos Worldwide, Inc. (NYSE:KRO). This group of stocks' market valuations resemble SLP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AZUL,10,59994,-3 SKYW,19,68825,3 ZEAL,3,20461,0 ATSG,20,112549,-1 ADUS,17,90806,-2 VRTU,28,155153,15 KRO,10,35133,0 Average,15.3,77560,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.3 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $42 million in SLP's case. Virtusa Corporation (NASDAQ:VRTU) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 3 bullish hedge fund positions. Simulations Plus, Inc. (NASDAQ:SLP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SLP is 41.4. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market again by 16.2 percentage points. Unfortunately SLP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SLP investors were disappointed as the stock returned -24.3% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.