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Hedge Funds Done Buying Intelligent Systems Corporation (INS)?

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Intelligent Systems Corporation (NYSE:INS).

Hedge fund interest in Intelligent Systems Corporation (NYSE:INS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Flexion Therapeutics Inc (NASDAQ:FLXN), Franklin Financial Network Inc (NYSE:FSB), and Liberty Oilfield Services Inc. (NYSE:LBRT) to gather more data points. Our calculations also showed that INS 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the top 15 defense contractors in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Now let’s take a peek at the latest hedge fund action regarding Intelligent Systems Corporation (NYSE:INS).

How are hedge funds trading Intelligent Systems Corporation (NYSE:INS)?

At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in INS over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Wallace R. Weitz & Co. held the most valuable stake in Intelligent Systems Corporation (NYSE:INS), which was worth $52.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $6.1 million worth of shares. AQR Capital Management, Marshall Wace LLP, 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 Wallace R. Weitz & Co. allocated the biggest weight to Intelligent Systems Corporation (NYSE:INS), around 2.78% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to INS.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the first quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Intelligent Systems Corporation (NYSE:INS) but similarly valued. These stocks are Flexion Therapeutics Inc (NASDAQ:FLXN), Franklin Financial Network Inc (NYSE:FSB), Liberty Oilfield Services Inc. (NYSE:LBRT), and Viomi Technology Co., Ltd (NASDAQ:VIOT). This group of stocks’ market valuations are closest to INS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLXN 14 55390 -1
FSB 4 7832 0
LBRT 12 11323 -4
VIOT 5 15007 -2
Average 8.75 22388 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $63 million in INS’s case. Flexion Therapeutics Inc (NASDAQ:FLXN) is the most popular stock in this table. On the other hand Franklin Financial Network Inc (NYSE:FSB) is the least popular one with only 4 bullish hedge fund positions. Intelligent Systems Corporation (NYSE:INS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately INS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on INS were disappointed as the stock returned -0.3% during the same time period 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 many of these stocks already outperformed the market so far this year.

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