In this article we will check out the progression of hedge fund sentiment towards Communications Systems, Inc. (NASDAQ:JCS) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Communications Systems, Inc. (NASDAQ:JCS) was in 3 hedge funds’ portfolios at the end of March. JCS has experienced a decrease in support from the world’s most elite money managers recently. There were 4 hedge funds in our database with JCS positions at the end of the previous quarter. Our calculations also showed that JCS 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.
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 44 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.
Mario Gabelli of GAMCO Investors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the recent hedge fund action regarding Communications Systems, Inc. (NASDAQ:JCS).
How are hedge funds trading Communications Systems, Inc. (NASDAQ:JCS)?
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in JCS over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GAMCO Investors was the largest shareholder of Communications Systems, Inc. (NASDAQ:JCS), with a stake worth $3.2 million reported as of the end of September. Trailing GAMCO Investors was Renaissance Technologies, which amassed a stake valued at $3.2 million. Royce & Associates was 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 GAMCO Investors allocated the biggest weight to Communications Systems, Inc. (NASDAQ:JCS), around 0.04% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0031 percent of its 13F equity portfolio to JCS.
Since Communications Systems, Inc. (NASDAQ:JCS) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers who were dropping their full holdings last quarter. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $0.1 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also sold off its stock, about $0.1 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Communications Systems, Inc. (NASDAQ:JCS). These stocks are Onconova Therapeutics, Inc. (NASDAQ:ONTX), Apollo Endosurgery, Inc. (NASDAQ:APEN), Ambow Education Holding Ltd. (NYSE:AMBO), and Alio Gold Inc. (NYSE:ALO). This group of stocks’ market valuations are closest to JCS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ONTX | 1 | 55 | -3 |
| APEN | 5 | 7698 | 0 |
| AMBO | 1 | 39 | 0 |
| ALO | 3 | 1558 | 0 |
| Average | 2.5 | 2338 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.5 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $6 million in JCS’s case. Apollo Endosurgery, Inc. (NASDAQ:APEN) is the most popular stock in this table. On the other hand Onconova Therapeutics, Inc. (NASDAQ:ONTX) is the least popular one with only 1 bullish hedge fund positions. Communications Systems, Inc. (NASDAQ:JCS) 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 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately JCS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on JCS were disappointed as the stock returned 12.1% 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.
Disclosure: None. This article was originally published at Insider Monkey.
