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Is Smart Money Right to be Bullish On Pacific Ethanol Inc (PEIX)?

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It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Pacific Ethanol Inc (NASDAQ:PEIX).

Pacific Ethanol Inc (NASDAQ:PEIX) was in 10 hedge funds’ portfolios at the end of September. PEIX investors should pay attention to an increase in enthusiasm from smart money of late. There were 9 hedge funds in our database with PEIX holdings at the end of June. 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 Stein Mart, Inc. (NASDAQ:SMRT), Glu Mobile Inc. (NASDAQ:GLUU), and Consolidated-Tomoka Land Co. (NYSEAMEX:CTO) 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.

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What does the smart money think about Pacific Ethanol Inc (NASDAQ:PEIX)?

Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a rise of 11% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish positions in PEIX over the last 5 quarters, which has declined by over 20% in 2016. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

HedgeFundSentimentChart

According to Insider Monkey’s hedge fund database, Michael Lau’s Candlewood Investment Group has the largest position in Pacific Ethanol Inc (NASDAQ:PEIX), worth close to $70 million, amounting to 94.8% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $2 million position. Remaining professional money managers that are bullish contain Millennium Management, one of the 10 largest hedge funds in the world, Glenn Russell Dubin’s Highbridge Capital Management, and Peter Muller’s PDT Partners. 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.

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