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Richardson Electronics, Ltd. (RELL): Are Hedge Funds Right About This Stock?

At Insider Monkey, we pore over the filings of more than 700 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Richardson Electronics, Ltd. (NASDAQ:RELL) makes for a good investment right now.

Hedge fund interest in Richardson Electronics, Ltd. (NASDAQ:RELL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare RELL to other stocks including Sterling Construction Company, Inc. (NASDAQ:STRL), Willdan Group, Inc. (NASDAQ:WLDN), and Lifevantage Corporation (NASDAQ:LFVN) to get a better sense of its popularity.

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At the moment there are a lot of signals market participants can use to size up publicly traded companies. A couple of the most innovative signals are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the best hedge fund managers can beat the S&P 500 by a very impressive amount (see the details here).

With all of this in mind, we’re going to take a peek at the new action regarding Richardson Electronics, Ltd. (NASDAQ:RELL).

What does the smart money think about Richardson Electronics, Ltd. (NASDAQ:RELL)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Richardson Electronics, Ltd. (NASDAQ:RELL), worth close to $6.4 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, managed by Jim Simons, which holds an $5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism encompass Jeffrey Bronchick’s Cove Street Capital, Israel Englander’s Millennium Management and Jim Tarantino and Chris Galvin’s Westerly Capital Management.

Because Richardson Electronics, Ltd. (NASDAQ:RELL) has experienced falling interest from the smart money, logic holds that there were a few hedgies who sold off their entire stakes last quarter. Interestingly, Jeffrey Gates’s Gates Capital Management dumped the largest position of the 700 funds tracked by Insider Monkey, valued at an estimated $23.4 million in stock. Robert G. Moses’s fund, RGM Capital, also sold off its stock, about $6.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Richardson Electronics, Ltd. (NASDAQ:RELL) but similarly valued. We will take a look at Sterling Construction Company, Inc. (NASDAQ:STRL), Willdan Group, Inc. (NASDAQ:WLDN), Lifevantage Corporation (NASDAQ:LFVN), and BSQUARE Corporation (NASDAQ:BSQR). All of these stocks’ market caps resemble RELL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STRL 4 2160 1
WLDN 7 4517 -2
LFVN 4 2145 2
BSQR 7 9421 3

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $19 million in RELL’s case. Willdan Group, Inc. (NASDAQ:WLDN) is the most popular stock in this table, while Sterling Construction Company, Inc. (NASDAQ:STRL) is the least popular one with only 4 bullish hedge fund positions. Although Richardson Electronics, Ltd. (NASDAQ:RELL) is not the most popular stock in the group it has still succeeded to attract attention from hedge funds above average. Even though this might be a positive sign, we’d rather spend our time focusing on stocks that hedge funds hedge funds are collectively most bullish on. In this case, the right alternative might be WLDN.

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