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Did Hedge Funds Drop The Ball On SMTC Corporation (SMTX) ?

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards SMTC Corporation (NASDAQ:SMTX) and see how it was affected.

Is SMTC Corporation (NASDAQ:SMTX) undervalued? The smart money is taking an optimistic view. The number of long hedge fund bets increased by 1 in recent months. Our calculations also showed that SMTX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most shareholders, hedge funds are seen as slow, old financial tools of years past. While there are more than 8000 funds in operation at the moment, Our experts choose to focus on the upper echelon of this group, about 750 funds. It is estimated that this group of investors preside over the majority of the smart money’s total capital, and by keeping an eye on their matchless stock picks, Insider Monkey has unearthed many investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Nelson Obus of Wynnefield Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s review the recent hedge fund action regarding SMTC Corporation (NASDAQ:SMTX).

Hedge fund activity in SMTC Corporation (NASDAQ:SMTX)

At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the second quarter of 2019. By comparison, 3 hedge funds held shares or bullish call options in SMTX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Wynnefield Capital, managed by Nelson Obus, holds the biggest position in SMTC Corporation (NASDAQ:SMTX). Wynnefield Capital has a $4.3 million position in the stock, comprising 2.3% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $0.9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Wynnefield Capital allocated the biggest weight to SMTC Corporation (NASDAQ:SMTX), around 2.27% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0007 percent of its 13F equity portfolio to SMTX.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the biggest position in SMTC Corporation (NASDAQ:SMTX). Citadel Investment Group had $0 million invested in the company at the end of the quarter.

Let’s now take a look at hedge fund activity in other stocks similar to SMTC Corporation (NASDAQ:SMTX). We will take a look at Pro-Dex, Inc. (NASDAQ:PDEX), Tottenham Acquisition I Limited (NASDAQ:TOTA), Obsidian Energy Ltd. (NYSE:OBE), and FreightCar America, Inc. (NASDAQ:RAIL). All of these stocks’ market caps match SMTX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PDEX 4 910 0
TOTA 5 3935 0
OBE 6 3998 -1
RAIL 10 9431 1
Average 6.25 4569 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $5 million in SMTX’s case. FreightCar America, Inc. (NASDAQ:RAIL) is the most popular stock in this table. On the other hand Pro-Dex, Inc. (NASDAQ:PDEX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks SMTC Corporation (NASDAQ:SMTX) is even less popular than PDEX. Hedge funds clearly dropped the ball on SMTX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SMTX as the stock returned 42.6% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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