Diodes Incorporated (DIOD): Are Hedge Funds Right About This Stock?

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Diodes Incorporated (NASDAQ:DIOD) from the perspective of those successful funds.

Is Diodes Incorporated (NASDAQ:DIOD) a buy right now? Money managers are actually in an optimistic mood. The number of long hedge fund positions advanced by 1 lately. DIODwas in 8 hedge funds’ portfolios at the end of the third quarter of 2016. There were 7 hedge funds in our database with DIOD positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as MacroGenics Inc (NASDAQ:MGNX), Clayton Williams Energy, Inc. (NASDAQ:CWEI), and NCI Building Systems, Inc. (NYSE:NCS) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s review the new action encompassing Diodes Incorporated (NASDAQ:DIOD).

How have hedgies been trading Diodes Incorporated (NASDAQ:DIOD)?

Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, up 14% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in DIOD over the last 5 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Pzena Investment Management, led by Richard S. Pzena, holds the most valuable position in Diodes Incorporated (NASDAQ:DIOD). According to regulatory filings, the fund has a $33.8 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Chuck Royce of Royce & Associates, with a $17.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise Renaissance Technologies, one of the biggest hedge funds in the world, Ken Griffin’s Citadel Investment Group and David E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Consequently, some big names have been driving this bullishness. Highbridge Capital Management, led by Glenn Russell Dubin, initiated the most valuable position in Diodes Incorporated (NASDAQ:DIOD). According to its latest 13F filing, the fund had $0.3 million invested in the company at the end of the quarter. Frank Slattery’s Symmetry Peak Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Diodes Incorporated (NASDAQ:DIOD) but similarly valued. We will take a look at MacroGenics Inc (NASDAQ:MGNX), Clayton Williams Energy, Inc. (NASDAQ:CWEI), NCI Building Systems, Inc. (NYSE:NCS), and Stewart Information Services Corp (NYSE:STC). This group of stocks’ market caps match DIOD’s market cap.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $207 million. That figure was $62 million in DIOD’s case. NCI Building Systems, Inc. (NYSE:NCS) is the most popular stock in this table. On the other hand Clayton Williams Energy, Inc. (NASDAQ:CWEI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Diodes Incorporated (NASDAQ:DIOD) is even less popular than CWEI. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: none.