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Were Hedge Funds Right About Ingles Markets, Incorporated (IMKTA)?

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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended March 31st, so let’s proceed with the discussion of the hedge fund sentiment on Ingles Markets, Incorporated (NASDAQ:IMKTA).

Is Ingles Markets, Incorporated (NASDAQ:IMKTA) the right investment to pursue these days? The smart money was in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 4 recently. Ingles Markets, Incorporated (NASDAQ:IMKTA) was in 16 hedge funds' portfolios at the end of March. The all time high for this statistic is 20. Our calculations also showed that IMKTA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

most successful short sellers of all time
most successful short sellers of all time

Michael Burry of Scion Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind let's go over the new hedge fund action surrounding Ingles Markets, Incorporated (NASDAQ:IMKTA).

Do Hedge Funds Think IMKTA Is A Good Stock To Buy Now?

At Q1's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in IMKTA over the last 23 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is IMKTA A Good Stock To Buy?
Is IMKTA A Good Stock To Buy?

More specifically, GAMCO Investors was the largest shareholder of Ingles Markets, Incorporated (NASDAQ:IMKTA), with a stake worth $52.5 million reported as of the end of March. Trailing GAMCO Investors was Royce & Associates, which amassed a stake valued at $40 million. Renaissance Technologies, Arrowstreet Capital, and Scion Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Verdad Advisers allocated the biggest weight to Ingles Markets, Incorporated (NASDAQ:IMKTA), around 2.46% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, designating 0.68 percent of its 13F equity portfolio to IMKTA.

Judging by the fact that Ingles Markets, Incorporated (NASDAQ:IMKTA) has witnessed a decline in interest from the smart money, it's safe to say that there is a sect of funds who sold off their full holdings in the first quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP sold off the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising close to $2.6 million in stock. Valerie Malter's fund, Matarin Capital, also said goodbye to its stock, about $1.6 million worth. These transactions are important to note, as total hedge fund interest fell by 4 funds in the first quarter.

Let's also examine hedge fund activity in other stocks similar to Ingles Markets, Incorporated (NASDAQ:IMKTA). We will take a look at Ocular Therapeutix Inc (NASDAQ:OCUL), NetGear, Inc. (NASDAQ:NTGR), 1st Source Corporation (NASDAQ:SRCE), Premier Financial Corp. (NASDAQ:PFC), Translate Bio, Inc. (NASDAQ:TBIO), Sculptor Capital Management, Inc. (NYSE:SCU), and First Bancorp (NASDAQ:FBNC). All of these stocks' market caps resemble IMKTA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCUL,20,202267,3 NTGR,16,38222,-1 SRCE,8,21273,-5 PFC,10,74166,-1 TBIO,20,397596,0 SCU,17,90518,0 FBNC,13,23302,0 Average,14.9,121049,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $150 million in IMKTA's case. Ocular Therapeutix Inc (NASDAQ:OCUL) is the most popular stock in this table. On the other hand 1st Source Corporation (NASDAQ:SRCE) is the least popular one with only 8 bullish hedge fund positions. Ingles Markets, Incorporated (NASDAQ:IMKTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IMKTA is 58.3. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately IMKTA wasn't nearly as popular as these 5 stocks and hedge funds that were betting on IMKTA were disappointed as the stock returned -3.1% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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