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Is Tandy Leather Factory, Inc. (TLF) Going to Burn These Hedge Funds?

Asma UL Husna

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Tandy Leather Factory, Inc. (NASDAQ:TLF).

Tandy Leather Factory, Inc. (NASDAQ:TLF) was in 4 hedge funds' portfolios at the end of September. TLF investors should be aware of an increase in hedge fund sentiment recently. There were 3 hedge funds in our database with TLF holdings at the end of the previous quarter. Our calculations also showed that TLF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_224708" align="aligncenter" width="464"] New York Stock Exchange[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's check out the new hedge fund action regarding Tandy Leather Factory, Inc. (NASDAQ:TLF).

How have hedgies been trading Tandy Leather Factory, Inc. (NASDAQ:TLF)?

Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the second quarter of 2019. By comparison, 5 hedge funds held shares or bullish call options in TLF a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Gregory Bylinsky and Jefferson Gramm's Bandera Partners has the most valuable position in Tandy Leather Factory, Inc. (NASDAQ:TLF), worth close to $13.3 million, corresponding to 8.4% of its total 13F portfolio. On Bandera Partners's heels is Beddow Capital Management, led by Ed Beddow and William Tichy, holding a $2.3 million position; 1.5% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of Frederick DiSanto's Ancora Advisors, Renaissance Technologies and . In terms of the portfolio weights assigned to each position Bandera Partners allocated the biggest weight to Tandy Leather Factory, Inc. (NASDAQ:TLF), around 8.37% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, setting aside 1.47 percent of its 13F equity portfolio to TLF.

Consequently, some big names were breaking ground themselves. Renaissance Technologies, assembled the biggest position in Tandy Leather Factory, Inc. (NASDAQ:TLF). Renaissance Technologies had $0.1 million invested in the company at the end of the quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tandy Leather Factory, Inc. (NASDAQ:TLF) but similarly valued. These stocks are VIVUS, Inc. (NASDAQ:VVUS), Pier 1 Imports, Inc. (NYSE:PIR), QuickLogic Corporation (NASDAQ:QUIK), and Aehr Test Systems (NASDAQ:AEHR). This group of stocks' market values resemble TLF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VVUS,1,1956,0 PIR,1,121,-3 QUIK,2,109,0 AEHR,2,2266,0 Average,1.5,1113,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.5 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $16 million in TLF's case. QuickLogic Corporation (NASDAQ:QUIK) is the most popular stock in this table. On the other hand VIVUS, Inc. (NASDAQ:VVUS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Tandy Leather Factory, Inc. (NASDAQ:TLF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on TLF as the stock returned 12.3% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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