Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Autobytel Inc. (NASDAQ:ABTL).
Hedge fund interest in Autobytel Inc. (NASDAQ:ABTL) shares was flat during the third quarter. This is usually a negative indicator. 13 hedge funds that we track owned the stock on September 30, same as on June 30. At the end of this article we will also compare ABTL to other stocks including Gencor Industries, Inc. (DE) (NASDAQ:GENC), J Alexander’s Holdings Inc (NYSE:JAX), and Kopin Corporation (NASDAQ:KOPN) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
What have hedge funds been doing with Autobytel Inc. (NASDAQ:ABTL)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in ABTL heading into this year, as hedge fund ownership has remained in a narrow range of between 13 and 14 funds throughout the last 5 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Lyon Street Capital, led by Brian C. Freckmann, holds the biggest position in Autobytel Inc. (NASDAQ:ABTL). Lyon Street Capital has a $9.5 million position in the stock, comprising 4.6% of its 13F portfolio. Sitting at the No. 2 spot is Richard McGuire of Marcato Capital Management, with a $6.6 million position. Some other professional money managers that are bullish comprise George McCabe’s Portolan Capital Management, Richard Driehaus’ Driehaus Capital, and David E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Since Autobytel Inc. (NASDAQ:ABTL) has weathered bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few hedge funds who sold off their full holdings in the third quarter. At the top of the heap, Mark Broach’s Manatuck Hill Partners got rid of the largest stake of all the hedgies watched by Insider Monkey, worth close to $0.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $0.2 million worth of shares.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Autobytel Inc. (NASDAQ:ABTL) but similarly valued. We will take a look at Gencor Industries, Inc. (DE) (NASDAQ:GENC), J Alexander’s Holdings Inc (NYSE:JAX), Kopin Corporation (NASDAQ:KOPN), and Zagg Inc (NASDAQ:ZAGG). All of these stocks’ market caps resemble ABTL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $38 million in ABTL’s case. J Alexander’s Holdings Inc (NYSE:JAX) is the most popular stock in this table. On the other hand Kopin Corporation (NASDAQ:KOPN) is the least popular one with only 2 bullish hedge fund positions. Autobytel Inc. (NASDAQ:ABTL) 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. In this regard JAX might be a better candidate to consider taking a long position in.