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

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·6 min read
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In this article you are going to find out whether hedge funds think HEICO Corporation (NYSE:HEI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

HEICO Corporation (NYSE:HEI) investors should pay attention to an increase in activity from the world's largest hedge funds recently. HEICO Corporation (NYSE:HEI) was in 44 hedge funds' portfolios at the end of December. 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 Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Michael Hintze CQS Capital
Michael Hintze CQS Capital

Michael Hintze of CQS Cayman LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. 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 homepage. Now let's view the fresh hedge fund action surrounding HEICO Corporation (NYSE:HEI).

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

At the end of December, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HEI over the last 22 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in HEICO Corporation (NYSE:HEI) was held by Gobi Capital, which reported holding $106.7 million worth of stock at the end of December. It was followed by Fisher Asset Management with a $106.4 million position. Other investors bullish on the company included Renaissance Technologies, Giverny Capital, and Silver Heights Capital 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 22.29% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, designating 8.66 percent of its 13F equity portfolio to HEI.

Now, some big names have been driving this bullishness. Renaissance Technologies, initiated the most valuable position in HEICO Corporation (NYSE:HEI). Renaissance Technologies had $9.3 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $6.8 million position during the quarter. The other funds with new positions in the stock are Michael Hintze's CQS Cayman LP, Terry Smith's Fundsmith Long/Short Fund, and Robert Vincent McHugh's Jade Capital Advisors.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as HEICO Corporation (NYSE:HEI) but similarly valued. We will take a look at Invitation Homes Inc. (NYSE:INVH), FirstEnergy Corp. (NYSE:FE), Monolithic Power Systems, Inc. (NASDAQ:MPWR), The Liberty SiriusXM Group (NASDAQ:LSXMA), Carnival Corporation & plc (NYSE:CUK), Logitech International SA (NASDAQ:LOGI), and Tractor Supply Company (NASDAQ:TSCO). This group of stocks' market caps are closest to HEI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INVH,27,833637,-1 FE,50,1305329,-9 MPWR,30,640635,-7 LSXMA,42,1691626,0 CUK,7,116507,-6 LOGI,21,432791,6 TSCO,39,1179291,-9 Average,30.9,885688,-3.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $886 million. That figure was $786 million in HEI's case. FirstEnergy Corp. (NYSE:FE) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 7 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 72.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately HEI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HEI were disappointed as the stock returned 6.4% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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