Is HLI Stock A Buy or Sell?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Houlihan Lokey Inc (NYSE:HLI).

Is HLI stock a buy? Houlihan Lokey Inc (NYSE:HLI) shareholders have witnessed an increase in hedge fund sentiment in recent months. Houlihan Lokey Inc (NYSE:HLI) was in 26 hedge funds’ portfolios at the end of December. The all time high for this statistic is 24. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HLI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Keeping this in mind let’s analyze the key hedge fund action regarding Houlihan Lokey Inc (NYSE:HLI).

Do Hedge Funds Think HLI Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 86% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in HLI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the biggest position in Houlihan Lokey Inc (NYSE:HLI). Royce & Associates has a $35.7 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Ariel Investments, managed by John W. Rogers, which holds a $26.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other peers that hold long positions consist of Frederick DiSanto’s Ancora Advisors, Israel Englander’s Millennium Management and Charles Montanaro’s Montanaro Asset Management. In terms of the portfolio weights assigned to each position Montanaro Asset Management allocated the biggest weight to Houlihan Lokey Inc (NYSE:HLI), around 1.33% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, designating 0.48 percent of its 13F equity portfolio to HLI.

Consequently, specific money managers have jumped into Houlihan Lokey Inc (NYSE:HLI) headfirst. Montanaro Asset Management, managed by Charles Montanaro, established the biggest position in Houlihan Lokey Inc (NYSE:HLI). Montanaro Asset Management had $7.9 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $4.1 million position during the quarter. The other funds with new positions in the stock are Daniel Johnson’s Gillson Capital, Dmitry Balyasny’s Balyasny Asset Management, and Greg Eisner’s Engineers Gate Manager.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Houlihan Lokey Inc (NYSE:HLI) but similarly valued. We will take a look at SLM Corp (NASDAQ:SLM), Exponent, Inc. (NASDAQ:EXPO), Grupo Televisa SAB (NYSE:TV), Affiliated Managers Group, Inc. (NYSE:AMG), Goosehead Insurance, Inc. (NASDAQ:GSHD), 21Vianet Group Inc (NASDAQ:VNET), and SmileDirectClub, Inc. (NASDAQ:SDC). This group of stocks’ market values are closest to HLI’s market value.

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As you can see these stocks had an average of 22.9 hedge funds with bullish positions and the average amount invested in these stocks was $469 million. That figure was $122 million in HLI’s case. 21Vianet Group Inc (NASDAQ:VNET) is the most popular stock in this table. On the other hand Exponent, Inc. (NASDAQ:EXPO) is the least popular one with only 15 bullish hedge fund positions. Houlihan Lokey Inc (NYSE:HLI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HLI is 70.6. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately HLI wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on HLI were disappointed as the stock returned 2.1% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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