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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Veeco Instruments Inc. (NASDAQ:VECO).
Is VECO a good stock to buy now? Prominent investors were becoming less confident. The number of long hedge fund bets were cut by 1 in recent months. Veeco Instruments Inc. (NASDAQ:VECO) was in 19 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that VECO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Tim Woolley of Polar Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind we're going to review the recent hedge fund action regarding Veeco Instruments Inc. (NASDAQ:VECO).
Do Hedge Funds Think VECO Is A Good Stock To Buy Now?
At third quarter's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VECO over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Veeco Instruments Inc. (NASDAQ:VECO) was held by Lynrock Lake, which reported holding $218.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $12.8 million position. Other investors bullish on the company included D E Shaw, Polar Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to Veeco Instruments Inc. (NASDAQ:VECO), around 16.28% of its 13F portfolio. VIEX Capital Advisors is also relatively very bullish on the stock, designating 5.9 percent of its 13F equity portfolio to VECO.
Judging by the fact that Veeco Instruments Inc. (NASDAQ:VECO) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers that elected to cut their positions entirely in the third quarter. At the top of the heap, Michael Gelband's ExodusPoint Capital cut the largest investment of all the hedgies followed by Insider Monkey, comprising close to $0.4 million in stock, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Veeco Instruments Inc. (NASDAQ:VECO) but similarly valued. These stocks are National Presto Industries Inc. (NYSE:NPK), Gladstone Commercial Corporation (NASDAQ:GOOD), Eagle Pharmaceuticals Inc (NASDAQ:EGRX), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), Loop Industries, Inc. (NASDAQ:LOOP), Agilysys, Inc. (NASDAQ:AGYS), and Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX). This group of stocks' market caps match VECO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NPK,11,60130,3 GOOD,8,48516,1 EGRX,16,99485,0 AMRX,11,20102,0 LOOP,2,4442,0 AGYS,17,184719,-2 SNDX,25,202518,1 Average,12.9,88559,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $290 million in VECO's case. Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX) is the most popular stock in this table. On the other hand Loop Industries, Inc. (NASDAQ:LOOP) is the least popular one with only 2 bullish hedge fund positions. Veeco Instruments Inc. (NASDAQ:VECO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VECO is 66.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on VECO as the stock returned 53.1% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.