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Did Hedge Funds Make The Right Call On Super Micro Computer, Inc. (SMCI) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Super Micro Computer, Inc. (NASDAQ:SMCI) and determine whether the smart money was really smart about this stock.

Is Super Micro Computer, Inc. (NASDAQ:SMCI) a bargain? The smart money was betting on the stock. The number of bullish hedge fund bets rose by 22 recently. Our calculations also showed that SMCI 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s view the recent hedge fund action regarding Super Micro Computer, Inc. (NASDAQ:SMCI).

How have hedgies been trading Super Micro Computer, Inc. (NASDAQ:SMCI)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 1100% from one quarter earlier. On the other hand, there were a total of 2 hedge funds with a bullish position in SMCI a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in Super Micro Computer, Inc. (NASDAQ:SMCI) was held by Oaktree Capital Management, which reported holding $73.8 million worth of stock at the end of September. It was followed by Empyrean Capital Partners with a $71.7 million position. Other investors bullish on the company included Madison Avenue Partners, Park West Asset Management, and Hawk Ridge Management. In terms of the portfolio weights assigned to each position Madison Avenue Partners allocated the biggest weight to Super Micro Computer, Inc. (NASDAQ:SMCI), around 22.4% of its 13F portfolio. Nokomis Capital is also relatively very bullish on the stock, earmarking 9.28 percent of its 13F equity portfolio to SMCI.

As industrywide interest jumped, some big names were breaking ground themselves. Empyrean Capital Partners, managed by Michael A. Price and Amos Meron, created the largest position in Super Micro Computer, Inc. (NASDAQ:SMCI). Empyrean Capital Partners had $71.7 million invested in the company at the end of the quarter. Eli Samaha’s Madison Avenue Partners also made a $45.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter S. Park’s Park West Asset Management, David Brown’s Hawk Ridge Management, and Nathaniel August’s Mangrove Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Super Micro Computer, Inc. (NASDAQ:SMCI) but similarly valued. These stocks are Allegheny Technologies Incorporated (NYSE:ATI), Acadia Realty Trust (NYSE:AKR), S & T Bancorp Inc (NASDAQ:STBA), and Amneal Pharmaceuticals, Inc. (NYSE:AMRX). All of these stocks’ market caps match SMCI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATI 26 94777 -1
AKR 14 31992 1
STBA 4 3076 -5
AMRX 7 4326 -3
Average 12.75 33543 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $433 million in SMCI’s case. Allegheny Technologies Incorporated (NYSE:ATI) is the most popular stock in this table. On the other hand S & T Bancorp Inc (NASDAQ:STBA) is the least popular one with only 4 bullish hedge fund positions. Super Micro Computer, Inc. (NASDAQ:SMCI) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SMCI as the stock returned 33.4% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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