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 Exponent, Inc. (NASDAQ:EXPO) and determine whether hedge funds had an edge regarding this stock.
Exponent, Inc. (NASDAQ:EXPO) has seen an increase in activity from the world’s largest hedge funds lately. Exponent, Inc. (NASDAQ:EXPO) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 21. There were 17 hedge funds in our database with EXPO positions at the end of the first quarter. Our calculations also showed that EXPO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the 21st century investor’s toolkit there are a multitude of tools shareholders employ to analyze stocks. Some of the most underrated tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite investment managers can outclass the market by a very impressive amount (see the details here).
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to analyze the key hedge fund action encompassing Exponent, Inc. (NASDAQ:EXPO).
Hedge fund activity in Exponent, Inc. (NASDAQ:EXPO)
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in EXPO a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Exponent, Inc. (NASDAQ:EXPO), which was worth $31.3 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $13.8 million worth of shares. GLG Partners, Two Sigma Advisors, and Winton Capital Management 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 Sandler Capital Management allocated the biggest weight to Exponent, Inc. (NASDAQ:EXPO), around 0.54% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.29 percent of its 13F equity portfolio to EXPO.
As one would reasonably expect, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Exponent, Inc. (NASDAQ:EXPO). Arrowstreet Capital had $3 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $1.6 million investment in the stock during the quarter. The following funds were also among the new EXPO investors: Lee Ainslie’s Maverick Capital, Ran Pang’s Quantamental Technologies, and Parvinder Thiara’s Athanor Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Exponent, Inc. (NASDAQ:EXPO) but similarly valued. These stocks are Pilgrim’s Pride Corporation (NASDAQ:PPC), Allison Transmission Holdings Inc (NYSE:ALSN), L Brands Inc (NYSE:LB), AGCO Corporation (NYSE:AGCO), Penn National Gaming, Inc (NASDAQ:PENN), Emergent Biosolutions Inc (NYSE:EBS), and Littelfuse, Inc. (NASDAQ:LFUS). All of these stocks’ market caps are similar to EXPO’s market cap.
|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 27 hedge funds with bullish positions and the average amount invested in these stocks was $441 million. That figure was $92 million in EXPO’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Pilgrim’s Pride Corporation (NASDAQ:PPC) is the least popular one with only 15 bullish hedge fund positions. Exponent, Inc. (NASDAQ:EXPO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EXPO is 41.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately EXPO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EXPO investors were disappointed as the stock returned -10.8% in the third 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.