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This Metric Says You Are Smart to Sell Layne Christensen Company (NASDAQ:LAYN)

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Is Layne Christensen Company (NASDAQ:LAYN) undervalued? The smart money is getting less bullish. The number of bullish hedge fund bets decreased by 3 lately.

Mario Gabelli with cereal box

According to most market participants, hedge funds are viewed as worthless, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, we look at the elite of this club, around 450 funds. Most estimates calculate that this group has its hands on most of the hedge fund industry’s total asset base, and by keeping an eye on their top equity investments, we have brought to light a number of investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year 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 outclassed the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Just as beneficial, positive insider trading activity is a second way to parse down the investments you’re interested in. Just as you’d expect, there are lots of incentives for an executive to downsize shares of his or her company, but just one, very clear reason why they would behave bullishly. Several academic studies have demonstrated the market-beating potential of this tactic if you understand where to look (learn more here).

With these “truths” under our belt, we’re going to take a glance at the recent action surrounding Layne Christensen Company (NASDAQ:LAYN).

How are hedge funds trading Layne Christensen Company (NASDAQ:LAYN)?

In preparation for this year, a total of 6 of the hedge funds we track held long positions in this stock, a change of -33% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes considerably.

When looking at the hedgies we track, GAMCO Investors, managed by Mario Gabelli, holds the largest position in Layne Christensen Company (NASDAQ:LAYN). GAMCO Investors has a $34.4 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot is Chuck Royce of Royce & Associates, with a $28.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Jeffrey Vinik’s Vinik Asset Management, John I. Dickerson’s Summit Global Management and Nelson Obus’s Wynnefield Capital.

Seeing as Layne Christensen Company (NASDAQ:LAYN) has faced bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers that slashed their entire stakes heading into 2013. Intriguingly, Jim Simons’s Renaissance Technologies dumped the largest investment of the “upper crust” of funds we monitor, valued at about $2 million in stock., and D. E. Shaw of D E Shaw was right behind this move, as the fund said goodbye to about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds heading into 2013.

What have insiders been doing with Layne Christensen Company (NASDAQ:LAYN)?

Bullish insider trading is most useful when the company in question has experienced transactions within the past six months. Over the latest 180-day time period, Layne Christensen Company (NASDAQ:LAYN) has seen zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Layne Christensen Company (NASDAQ:LAYN). These stocks are Argan, Inc. (NYSEAMEX:AGX), Orion Marine Group, Inc. (NYSE:ORN), Dycom Industries, Inc. (NYSE:DY), Matrix Service Co (NASDAQ:MTRX), and Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD). This group of stocks are the members of the heavy construction industry and their market caps resemble LAYN’s market cap.

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