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Hedge Funds Have Never Been This Bullish On Silicon Laboratories Inc. (SLAB)

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 (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Silicon Laboratories Inc. (NASDAQ:SLAB) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Silicon Laboratories Inc. (NASDAQ:SLAB) has seen an increase in hedge fund interest in recent months. Silicon Laboratories Inc. (NASDAQ:SLAB) was in 28 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 20 hedge funds in our database with SLAB positions at the end of the first quarter. Our calculations also showed that SLAB 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

William Harnisch

William Harnisch of Peconic Partners LLC

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 take a look at the new hedge fund action regarding Silicon Laboratories Inc.(NASDAQ:SLAB).

What does smart money think about Silicon Laboratories Inc. (NASDAQ:SLAB)?

At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in SLAB a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Silicon Laboratories Inc. (NASDAQ:SLAB) was held by Carlson Capital, which reported holding $18.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $17 million position. Other investors bullish on the company included Schonfeld Strategic Advisors, Citadel Investment Group, and PDT Partners. In terms of the portfolio weights assigned to each position Provenire Capital allocated the biggest weight to Silicon Laboratories Inc. (NASDAQ:SLAB), around 2.31% of its 13F portfolio. Peconic Partners LLC is also relatively very bullish on the stock, earmarking 0.84 percent of its 13F equity portfolio to SLAB.

As one would reasonably expect, some big names have been driving this bullishness. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), initiated the most valuable position in Silicon Laboratories Inc. (NASDAQ:SLAB). Schonfeld Strategic Advisors had $8.2 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also initiated a $5.1 million position during the quarter. The other funds with brand new SLAB positions are William Harnisch’s Peconic Partners LLC, Noam Gottesman’s GLG Partners, and Anthony S. Daffer’s Provenire Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Silicon Laboratories Inc.(NASDAQ:SLAB) but similarly valued. These stocks are Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Mercury Systems Inc (NASDAQ:MRCY), Schneider National, Inc. (NYSE:SNDR), FirstService Corporation (NASDAQ:FSV), Choice Hotels International, Inc. (NYSE:CHH), Stag Industrial Inc (NYSE:STAG), and Cemex SAB de CV (NYSE:CX). All of these stocks’ market caps are closest to SLAB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHI 3 12561 0
MRCY 26 67228 14
SNDR 17 122089 -5
FSV 11 161212 -1
CHH 22 97339 6
STAG 14 52823 -1
CX 13 157223 1
Average 15.1 95782 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $97 million in SLAB’s case. Mercury Systems Inc (NASDAQ:MRCY) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Silicon Laboratories Inc. (NASDAQ:SLAB) is more popular among hedge funds. Our overall hedge fund sentiment score for SLAB is 90. 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. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately SLAB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SLAB were disappointed as the stock returned -3.6% since the end of the second 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.