Is Electro Scientific Industries, Inc. (NASDAQ:ESIO) an outstanding stock to buy now? Hedge funds are in a pessimistic mood. The number of bullish hedge fund bets went down by 2 lately.
To most traders, hedge funds are viewed as slow, outdated financial tools of yesteryear. While there are over 8000 funds trading today, we choose to focus on the upper echelon of this group, around 450 funds. It is estimated that this group has its hands on the majority of the hedge fund industry's total asset base, and by keeping an eye on their best stock picks, we have identified a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we've started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).
Equally as integral, positive insider trading sentiment is a second way to break down the financial markets. Obviously, there are many stimuli for an insider to cut shares of his or her company, but just one, very simple reason why they would buy. Plenty of empirical studies have demonstrated the useful potential of this tactic if investors know what to do (learn more here).
Keeping this in mind, it's important to take a gander at the recent action surrounding Electro Scientific Industries, Inc. (NASDAQ:ESIO).
In preparation for this quarter, a total of 6 of the hedge funds we track were long in this stock, a change of -25% from one quarter earlier. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly.
According to our comprehensive database, David Nierenberg's Nierenberg Investment Management had the biggest position in Electro Scientific Industries, Inc. (NASDAQ:ESIO), worth close to $35.1 million, comprising 19.3% of its total 13F portfolio. The second largest stake is held by Martin Whitman of Third Avenue Management, with a $23.5 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Jim Simons's Renaissance Technologies, John Overdeck and David Siegel's Two Sigma Advisors and Ken Gray and Steve Walsh's Bryn Mawr Capital.
Seeing as Electro Scientific Industries, Inc. (NASDAQ:ESIO) has experienced declining sentiment from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their positions entirely in Q1. Intriguingly, Andy Redleaf's Whitebox Advisors cut the largest investment of the "upper crust" of funds we key on, valued at an estimated $0.6 million in stock., and Paul Tudor Jones of Tudor Investment Corp was right behind this move, as the fund cut about $0.4 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds in Q1.
Bullish insider trading is most useful when the company we're looking at has seen transactions within the past six months. Over the last half-year time frame, Electro Scientific Industries, Inc. (NASDAQ:ESIO) has seen zero unique insiders purchasing, and 1 insider sales (see the details of insider trades here).
Let's go over hedge fund and insider activity in other stocks similar to Electro Scientific Industries, Inc. (NASDAQ:ESIO). These stocks are Zoltek Companies, Inc. (NASDAQ:ZOLT), Coleman Cable, Inc. (NASDAQ:CCIX), Capstone Turbine Corporation (NASDAQ:CPST), Preformed Line Products Company (NASDAQ:PLPC), and Ameresco Inc (NYSE:AMRC). All of these stocks are in the industrial electrical equipment industry and their market caps are similar to ESIO's market cap.