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Were Hedge Funds Right About Flocking Into Coherent, Inc. (COHR) ?

Nina Todic

Does Coherent, Inc. (NASDAQ:COHR) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Coherent, Inc. (NASDAQ:COHR) has seen an increase in hedge fund interest in recent months. COHR was in 17 hedge funds' portfolios at the end of December. There were 13 hedge funds in our database with COHR holdings at the end of the previous quarter. Our calculations also showed that cohr isn't among the 30 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' 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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

GOTHAM ASSET MANAGEMENT

We're going to review the recent hedge fund action surrounding Coherent, Inc. (NASDAQ:COHR).

What does the smart money think about Coherent, Inc. (NASDAQ:COHR)?

At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COHR over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with COHR Positions

Among these funds, Royce & Associates held the most valuable stake in Coherent, Inc. (NASDAQ:COHR), which was worth $59.3 million at the end of the third quarter. On the second spot was Skylands Capital which amassed $17.5 million worth of shares. Moreover, Gotham Asset Management, Citadel Investment Group, and D E Shaw were also bullish on Coherent, Inc. (NASDAQ:COHR), allocating a large percentage of their portfolios to this stock.

Consequently, some big names have jumped into Coherent, Inc. (NASDAQ:COHR) headfirst. Gotham Asset Management, managed by Joel Greenblatt, created the most valuable position in Coherent, Inc. (NASDAQ:COHR). Gotham Asset Management had $10.6 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $2.7 million position during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management, Brian Ashford-Russell and Tim Woolley's Polar Capital, and Josh Goldberg's G2 Investment Partners Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Coherent, Inc. (NASDAQ:COHR) but similarly valued. These stocks are AVX Corporation (NYSE:AVX), Canada Goose Holdings Inc. (NYSE:GOOS), Five9 Inc (NASDAQ:FIVN), and Navistar International Corp (NYSE:NAV). This group of stocks' market valuations are closest to COHR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVX,16,120045,0 GOOS,29,174702,11 FIVN,28,469162,3 NAV,20,1055321,-6 Average,23.25,454808,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $455 million. That figure was $104 million in COHR's case. Canada Goose Holdings Inc. (NYSE:GOOS) is the most popular stock in this table. On the other hand AVX Corporation (NYSE:AVX) is the least popular one with only 16 bullish hedge fund positions. Coherent, Inc. (NASDAQ:COHR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on COHR as the stock returned 45.3% and outperformed the market by an even larger margin.

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

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