Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Standard Motor Products, Inc. (NYSE:SMP).
Is Standard Motor Products, Inc. (NYSE:SMP) a cheap investment now? Hedge funds are getting less optimistic. The number of long hedge fund bets shrunk by 1 in recent months. Our calculations also showed that SMP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). SMP was in 9 hedge funds' portfolios at the end of March. There were 10 hedge funds in our database with SMP positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a glance 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)?
Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SMP over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Standard Motor Products, Inc. (NYSE:SMP) was held by Royce & Associates, which reported holding $51.5 million worth of stock at the end of September. It was followed by GAMCO Investors with a $6.4 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Standard Motor Products, Inc. (NYSE:SMP), around 0.76% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.7 percent of its 13F equity portfolio to SMP.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Schonfeld Strategic Advisors. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SMP as a viable investment and initiated a position in the stock.
Let's now take a look at hedge fund activity in other stocks similar to Standard Motor Products, Inc. (NYSE:SMP). These stocks are First Busey Corporation (NASDAQ:BUSE), Sonos, Inc. (NASDAQ:SONO), Carpenter Technology Corporation (NYSE:CRS), and TPG Specialty Lending Inc (NYSE:TSLX). This group of stocks' market caps are similar to SMP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BUSE,11,27678,-1 SONO,33,139823,7 CRS,16,47508,0 TSLX,13,34398,3 Average,18.25,62352,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $68 million in SMP's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand First Busey Corporation (NASDAQ:BUSE) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Standard Motor Products, Inc. (NYSE:SMP) is even less popular than BUSE. Hedge funds dodged a bullet by taking a bearish stance towards SMP. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. Unfortunately SMP wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SMP investors were disappointed as the stock returned -2.5% during the second quarter (through June 22nd) 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 most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.