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Was The Smart Money Right About HEICO Corporation (HEI)?

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Technology stocks had a lousy start to 2022. QQQ lost 9% of its value in January. Pandemic winners are getting crushed while energy stocks are surging. Roblox lost 36%, Moderna lost 33%, and Carvana and Shopify lost 30% of their values in January. We aren't certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards HEICO Corporation (NYSE:HEI) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is HEICO Corporation (NYSE:HEI) an attractive investment now? Money managers were in a bearish mood. The number of long hedge fund bets decreased by 6 recently. HEICO Corporation (NYSE:HEI) was in 35 hedge funds' portfolios at the end of September. The all time high for this statistic is 57. Our calculations also showed that HEI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 41 hedge funds in our database with HEI holdings at the end of June.

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we're going to analyze the key hedge fund action surrounding HEICO Corporation (NYSE:HEI).

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

At the end of September, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 43 hedge funds with a bullish position in HEI a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is HEI A Good Stock To Buy?
Is HEI A Good Stock To Buy?

The largest stake in HEICO Corporation (NYSE:HEI) was held by Gobi Capital, which reported holding $220.3 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $95.9 million position. Other investors bullish on the company included Giverny Capital, Silver Heights Capital Management, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to HEICO Corporation (NYSE:HEI), around 17.76% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, setting aside 5.82 percent of its 13F equity portfolio to HEI.

Seeing as HEICO Corporation (NYSE:HEI) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies that decided to sell off their entire stakes in the third quarter. It's worth mentioning that Nathaniel August's Mangrove Partners sold off the biggest position of the "upper crust" of funds watched by Insider Monkey, comprising close to $6.3 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund said goodbye to about $3.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 6 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to HEICO Corporation (NYSE:HEI). We will take a look at Amcor plc (NYSE:AMCR), Quest Diagnostics Incorporated (NYSE:DGX), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Teleflex Incorporated (NYSE:TFX), Domino's Pizza, Inc. (NYSE:DPZ), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), and Pembina Pipeline Corp (NYSE:PBA). This group of stocks' market values match HEI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMCR,19,214115,3 DGX,36,488311,5 SSNC,51,2925436,2 TFX,26,579122,-4 DPZ,36,2541766,5 JBHT,22,315309,-4 PBA,8,62632,-7 Average,28.3,1018099,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $1018 million. That figure was $719 million in HEI's case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 8 bullish hedge fund positions. HEICO Corporation (NYSE:HEI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HEI is 48.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on HEI as the stock returned 3.5% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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