Hedge Funds Have Never Been This Bullish On nLIGHT, Inc. (LASR)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like nLIGHT, Inc. (NASDAQ:LASR).

nLIGHT, Inc. (NASDAQ:LASR) has experienced an increase in hedge fund sentiment recently. Our calculations also showed that LASR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to go over the recent hedge fund action regarding nLIGHT, Inc. (NASDAQ:LASR).

Hedge fund activity in nLIGHT, Inc. (NASDAQ:LASR)

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in LASR a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is LASR A Good Stock To Buy?

The largest stake in nLIGHT, Inc. (NASDAQ:LASR) was held by Royce & Associates, which reported holding $37.7 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $1.9 million position. Other investors bullish on the company included Rima Senvest Management, Balyasny Asset Management, and Weld Capital Management. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to nLIGHT, Inc. (NASDAQ:LASR), around 0.35% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to LASR.

Consequently, key money managers have jumped into nLIGHT, Inc. (NASDAQ:LASR) headfirst. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in nLIGHT, Inc. (NASDAQ:LASR). Point72 Asset Management had $1.9 million invested in the company at the end of the quarter. Richard Mashaal’s Rima Senvest Management also initiated a $0.5 million position during the quarter. The other funds with brand new LASR positions are Dmitry Balyasny’s Balyasny Asset Management, Minhua Zhang’s Weld Capital Management, and Israel Englander’s Millennium Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as nLIGHT, Inc. (NASDAQ:LASR) but similarly valued. These stocks are Century Aluminum Co (NASDAQ:CENX), Harmonic Inc (NASDAQ:HLIT), Johnson Outdoors Inc. (NASDAQ:JOUT), and Mercantile Bank Corp. (NASDAQ:MBWM). This group of stocks’ market valuations are similar to LASR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CENX 12 27232 -2
HLIT 19 80499 5
JOUT 12 61479 2
MBWM 8 31156 1
Average 12.75 50092 1.5

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 $50 million. That figure was $41 million in LASR’s case. Harmonic Inc (NASDAQ:HLIT) is the most popular stock in this table. On the other hand Mercantile Bank Corp. (NASDAQ:MBWM) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks nLIGHT, Inc. (NASDAQ:LASR) is even less popular than MBWM. Hedge funds clearly dropped the ball on LASR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on LASR as the stock returned 27.3% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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