How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding CEVA, Inc. (NASDAQ:CEVA) and determine whether hedge funds had an edge regarding this stock.
CEVA, Inc. (NASDAQ:CEVA) investors should be aware of a decrease in enthusiasm from smart money of late. CEVA was in 11 hedge funds’ portfolios at the end of March. There were 13 hedge funds in our database with CEVA positions at the end of the previous quarter. Our calculations also showed that CEVA 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the new hedge fund action encompassing CEVA, Inc. (NASDAQ:CEVA).
What does smart money think about CEVA, Inc. (NASDAQ:CEVA)?
At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in CEVA a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in CEVA, Inc. (NASDAQ:CEVA), worth close to $7.9 million, accounting for less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which holds a $4.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish comprise Ken Griffin’s Citadel Investment Group, Richard Mashaal’s Rima Senvest Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to CEVA, Inc. (NASDAQ:CEVA), around 0.38% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to CEVA.
Because CEVA, Inc. (NASDAQ:CEVA) has experienced declining sentiment from the smart money, it’s safe to say that there exists a select few fund managers who sold off their entire stakes in the first quarter. At the top of the heap, Minhua Zhang’s Weld Capital Management sold off the biggest investment of the 750 funds monitored by Insider Monkey, worth close to $0.9 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $0.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds in the first quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CEVA, Inc. (NASDAQ:CEVA) but similarly valued. We will take a look at Harmonic Inc (NASDAQ:HLIT), Ultra Clean Holdings Inc (NASDAQ:UCTT), Apogee Enterprises, Inc. (NASDAQ:APOG), and Aegion Corp (NASDAQ:AEGN). This group of stocks’ market values are closest to CEVA’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $26 million in CEVA’s case. Ultra Clean Holdings Inc (NASDAQ:UCTT) is the most popular stock in this table. On the other hand Aegion Corp (NASDAQ:AEGN) is the least popular one with only 7 bullish hedge fund positions. CEVA, Inc. (NASDAQ:CEVA) is not the least popular stock in this group but hedge fund interest is still below 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on CEVA as the stock returned 50.1% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.