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Is Encore Wire Corporation (WIRE) Going to Burn These Hedge Funds?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Encore Wire Corporation (NASDAQ:WIRE) based on that data.

Is Encore Wire Corporation (NASDAQ:WIRE) a bargain? Prominent investors are in an optimistic mood. The number of long hedge fund bets moved up by 1 recently. Our calculations also showed that WIRE 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.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Encore Wire Corporation (NASDAQ:WIRE).

How have hedgies been trading Encore Wire Corporation (NASDAQ:WIRE)?

At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in WIRE a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Encore Wire Corporation (NASDAQ:WIRE), which was worth $6.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $5 million worth of shares. Millennium Management, Renaissance Technologies, and Forest Hill Capital 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 Forest Hill Capital allocated the biggest weight to Encore Wire Corporation (NASDAQ:WIRE), around 1.36% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.62 percent of its 13F equity portfolio to WIRE.

Consequently, key money managers were breaking ground themselves. Skylands Capital, managed by Charles Paquelet, established the largest position in Encore Wire Corporation (NASDAQ:WIRE). Skylands Capital had $2.2 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also initiated a $0.2 million position during the quarter.

Let’s check out hedge fund activity in other stocks similar to Encore Wire Corporation (NASDAQ:WIRE). We will take a look at Esperion Therapeutics, Inc. (NASDAQ:ESPR), Dillard’s, Inc. (NYSE:DDS), Diversified Healthcare Trust (NASDAQ:DHC), and KKR Real Estate Finance Trust Inc. (NYSE:KREF). This group of stocks’ market values are similar to WIRE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESPR 18 190538 3
DDS 13 125316 -7
DHC 10 12170 1
KREF 7 27093 -2
Average 12 88779 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $33 million in WIRE’s case. Esperion Therapeutics, Inc. (NASDAQ:ESPR) is the most popular stock in this table. On the other hand KKR Real Estate Finance Trust Inc. (NYSE:KREF) is the least popular one with only 7 bullish hedge fund positions. Encore Wire Corporation (NASDAQ:WIRE) 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately WIRE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WIRE were disappointed as the stock returned 11% 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.

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