Callaway Golf Co (ELY): Hedge Funds Are Bearish and Insiders Are Bullish, What Should You Do? – Pool Corporation (POOL), Nautilus, Inc. (NLS)

Is Callaway Golf Co (NYSE:ELY) a healthy stock for your portfolio? Money managers are selling. The number of long hedge fund positions dropped by 1 in recent months.

Callaway Golf Co (NYSE:ELY)

In the eyes of most stock holders, hedge funds are viewed as slow, outdated financial tools of the past. While there are over 8000 funds in operation today, we choose to focus on the elite of this club, around 450 funds. It is estimated that this group controls the majority of the hedge fund industry’s total capital, and by paying attention to their best equity investments, we have found a number of investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve began to 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, optimistic insider trading sentiment is another way to break down the financial markets. Obviously, there are lots of stimuli for an insider to drop shares of his or her company, but just one, very obvious reason why they would buy. Several academic studies have demonstrated the market-beating potential of this strategy if piggybackers understand where to look (learn more here).

With these “truths” under our belt, let’s take a look at the latest action surrounding Callaway Golf Co (NYSE:ELY).

Hedge fund activity in Callaway Golf Co (NYSE:ELY)

Heading into 2013, a total of 9 of the hedge funds we track were bullish in this stock, a change of -10% from the third quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially.

According to our comprehensive database, Royce & Associates, managed by Chuck Royce, holds the most valuable position in Callaway Golf Co (NYSE:ELY). Royce & Associates has a $25.1 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Ric Dillon of Diamond Hill Capital, with a $8.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds with similar optimism include John W. Rogers’s Ariel Investments, Israel Englander’s Millennium Management and Cliff Asness’s AQR Capital Management.

Because Callaway Golf Co (NYSE:ELY) has faced bearish sentiment from the smart money, logic holds that there is a sect of hedgies who sold off their positions entirely in Q4. Interestingly, D. E. Shaw’s D E Shaw said goodbye to the biggest position of all the hedgies we monitor, totaling close to $0.9 million in stock. These moves are interesting, as total hedge fund interest fell by 1 funds in Q4.

What do corporate executives and insiders think about Callaway Golf Co (NYSE:ELY)?

Bullish insider trading is particularly usable when the company we’re looking at has seen transactions within the past half-year. Over the latest six-month time frame, Callaway Golf Co (NYSE:ELY) has seen 3 unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Callaway Golf Co (NYSE:ELY). These stocks are Escalade, Inc. (NASDAQ:ESCA), Pool Corporation (NASDAQ:POOL), Nautilus, Inc. (NYSE:NLS), Johnson Outdoors Inc. (NASDAQ:JOUT), and Black Diamond Inc (NASDAQ:BDE). This group of stocks belong to the sporting goods industry and their market caps resemble ELY’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Escalade, Inc. (NASDAQ:ESCA) 2 2 1
Pool Corporation (NASDAQ:POOL) 14 0 7
Nautilus, Inc. (NYSE:NLS) 4 0 0
Johnson Outdoors Inc. (NASDAQ:JOUT) 4 0 2
Black Diamond Inc (NASDAQ:BDE) 5 0 0

With the returns exhibited by the aforementioned studies, retail investors should always monitor hedge fund and insider trading activity, and Callaway Golf Co (NYSE:ELY) is an important part of this process.

Click here to learn why you should track hedge funds