How do you pick the next stock to invest in? One way would be to spend hours 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 Speedway Motorsports, Inc. (NYSE:TRK).
Is Speedway Motorsports, Inc. (NYSE:TRK) a buy right now? Prominent investors are becoming more confident. The number of bullish hedge fund bets increased by 2 in recent months. Our calculations also showed that TRK isn’t among the 30 most popular stocks among hedge funds. TRK was in 13 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with TRK positions at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to view the recent hedge fund action regarding Speedway Motorsports, Inc. (NYSE:TRK).
How are hedge funds trading Speedway Motorsports, Inc. (NYSE:TRK)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in TRK at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Speedway Motorsports, Inc. (NYSE:TRK) was held by Renaissance Technologies, which reported holding $7 million worth of stock at the end of September. It was followed by Potrero Capital Research with a $4.4 million position. Other investors bullish on the company included Arrowstreet Capital, GAMCO Investors, and Citadel Investment Group.
As industrywide interest jumped, key money managers have jumped into Speedway Motorsports, Inc. (NYSE:TRK) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the largest position in Speedway Motorsports, Inc. (NYSE:TRK). Marshall Wace LLP had $0.2 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0 million position during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Speedway Motorsports, Inc. (NYSE:TRK) but similarly valued. We will take a look at Fiesta Restaurant Group Inc (NASDAQ:FRGI), Merchants Bancorp (NASDAQ:MBIN), Xperi Corporation (NASDAQ:XPER), and Schnitzer Steel Industries, Inc. (NASDAQ:SCHN). All of these stocks’ market caps match TRK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRGI | 20 | 156990 | 6 |
| MBIN | 8 | 12595 | 0 |
| XPER | 16 | 86113 | 2 |
| SCHN | 19 | 57579 | 1 |
| Average | 15.75 | 78319 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $17 million in TRK’s case. Fiesta Restaurant Group Inc (NASDAQ:FRGI) is the most popular stock in this table. On the other hand Merchants Bancorp (NASDAQ:MBIN) is the least popular one with only 8 bullish hedge fund positions. Speedway Motorsports, Inc. (NYSE:TRK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FRGI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
