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Hedge Funds Never Been This Bullish On IPG Photonics Corporation (IPGP)

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 IPG Photonics Corporation (NASDAQ:IPGP) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is IPG Photonics Corporation (NASDAQ:IPGP) undervalued? Investors who are in the know were getting more optimistic. The number of bullish hedge fund positions inched up by 10 in recent months. IPG Photonics Corporation (NASDAQ:IPGP) was in 30 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that IPGP 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.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to review the fresh hedge fund action surrounding IPG Photonics Corporation (NASDAQ:IPGP).

Hedge fund activity in IPG Photonics Corporation (NASDAQ:IPGP)

At Q2’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IPGP over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Impax Asset Management held the most valuable stake in IPG Photonics Corporation (NASDAQ:IPGP), which was worth $55.1 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $32.8 million worth of shares. Fisher Asset Management, Motley Fool Asset Management, and Two Sigma Advisors 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 Tenzing Global Investors allocated the biggest weight to IPG Photonics Corporation (NASDAQ:IPGP), around 5.91% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, designating 2.51 percent of its 13F equity portfolio to IPGP.

As industrywide interest jumped, key money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, initiated the most outsized position in IPG Photonics Corporation (NASDAQ:IPGP). D E Shaw had $8.8 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $8.4 million investment in the stock during the quarter. The other funds with brand new IPGP positions are David Harding’s Winton Capital Management, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Donald Sussman’s Paloma Partners.

Let’s now review hedge fund activity in other stocks similar to IPG Photonics Corporation (NASDAQ:IPGP). These stocks are F5 Networks, Inc. (NASDAQ:FFIV), Shaw Communications Inc (NYSE:SJR), CyrusOne Inc (NASDAQ:CONE), Beyond Meat, Inc. (NASDAQ:BYND), Henry Schein, Inc. (NASDAQ:HSIC), Ciena Corporation (NYSE:CIEN), and Chegg Inc (NYSE:CHGG). This group of stocks’ market valuations are similar to IPGP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FFIV 39 1073838 7
SJR 13 129866 1
CONE 25 483347 -6
BYND 29 253737 16
HSIC 33 1057007 -2
CIEN 32 369502 1
CHGG 45 1004897 11
Average 30.9 624599 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $625 million. That figure was $239 million in IPGP’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 13 bullish hedge fund positions. IPG Photonics Corporation (NASDAQ:IPGP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IPGP is 66.6. 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 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately IPGP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IPGP investors were disappointed as the stock returned 1.6% since Q2 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.