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Did Hedge Funds Make The Right Call On Mitek Systems, Inc. (MITK)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Mitek Systems, Inc. (NASDAQ:MITK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Mitek Systems, Inc. (NASDAQ:MITK) has seen a decrease in support from the world’s most elite money managers lately. MITK was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 19 hedge funds in our database with MITK holdings at the end of the previous quarter. Our calculations also showed that MITK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are viewed as slow, outdated financial tools of years past. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the moguls of this club, about 850 funds. Most estimates calculate that this group of people watch over the majority of the hedge fund industry’s total asset base, and by keeping track of their top investments, Insider Monkey has unsheathed a few investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to review the latest hedge fund action encompassing Mitek Systems, Inc. (NASDAQ:MITK).

How have hedgies been trading Mitek Systems, Inc. (NASDAQ:MITK)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in MITK a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Toronado Partners held the most valuable stake in Mitek Systems, Inc. (NASDAQ:MITK), which was worth $15 million at the end of the third quarter. On the second spot was Blue Grotto Capital which amassed $11.6 million worth of shares. Archon Capital Management, Cloverdale Capital Management, and P.A.W. CAPITAL PARTNERS were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to Mitek Systems, Inc. (NASDAQ:MITK), around 8.49% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, dishing out 8.01 percent of its 13F equity portfolio to MITK.

Seeing as Mitek Systems, Inc. (NASDAQ:MITK) has witnessed falling interest from the smart money, it’s safe to say that there were a few money managers that slashed their entire stakes last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest position of the 750 funds watched by Insider Monkey, comprising an estimated $0.9 million in stock. Josh Goldberg’s fund, G2 Investment Partners Management, also dumped its stock, about $0.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Mitek Systems, Inc. (NASDAQ:MITK). We will take a look at Surgery Partners, Inc. (NASDAQ:SGRY), Dorchester Minerals LP (NASDAQ:DMLP), HCI Group Inc (NYSE:HCI), and Lizhi Inc. (NASDAQ:LIZI). This group of stocks’ market caps are similar to MITK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SGRY 10 30221 -1
DMLP 6 15276 1
HCI 10 21739 0
LIZI 1 355 1
Average 6.75 16898 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $63 million in MITK’s case. Surgery Partners, Inc. (NASDAQ:SGRY) is the most popular stock in this table. On the other hand Lizhi Inc. (NASDAQ:LIZI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Mitek Systems, Inc. (NASDAQ:MITK) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately MITK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MITK were disappointed as the stock returned 20.8% since the end of the first quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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