The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Standard Motor Products, Inc. (NYSE:SMP) from the perspective of those elite funds.
Is Standard Motor Products, Inc. (NYSE:SMP) undervalued? The best stock pickers are buying. The number of bullish hedge fund bets rose by 1 lately. Our calculations also showed that SMP isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a gander at the recent hedge fund action regarding Standard Motor Products, Inc. (NYSE:SMP).
What have hedge funds been doing with Standard Motor Products, Inc. (NYSE:SMP)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SMP over the last 15 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Standard Motor Products, Inc. (NYSE:SMP) was held by Royce & Associates, which reported holding $107 million worth of stock at the end of March. It was followed by GAMCO Investors with a $7.5 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and Citadel Investment Group.
As aggregate interest increased, specific money managers have jumped into Standard Motor Products, Inc. (NYSE:SMP) headfirst. D E Shaw, managed by D. E. Shaw, created the largest position in Standard Motor Products, Inc. (NYSE:SMP). D E Shaw had $0.8 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is David Harding's Winton Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Standard Motor Products, Inc. (NYSE:SMP) but similarly valued. We will take a look at Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), FTS International, Inc. (NYSE:FTSI), Weis Markets, Inc. (NYSE:WMK), and United Fire Group, Inc. (NASDAQ:UFCS). This group of stocks' market caps are closest to SMP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APLS,19,283479,2 FTSI,21,108942,-1 WMK,15,82577,-2 UFCS,10,14894,-1 Average,16.25,122473,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $129 million in SMP's case. FTS International, Inc. (NYSE:FTSI) is the most popular stock in this table. On the other hand United Fire Group, Inc. (NASDAQ:UFCS) is the least popular one with only 10 bullish hedge fund positions. Standard Motor Products, Inc. (NYSE:SMP) is not the least popular stock in this group but hedge fund interest is still below average. 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SMP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SMP investors were disappointed as the stock returned -9.2% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.