Is IPHI A Good Stock To Buy According To Hedge Funds?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Inphi Corporation (NYSE:IPHI) based on that data.

Is IPHI a good stock to buy? Prominent investors were taking a bearish view. The number of bullish hedge fund bets decreased by 12 recently. Inphi Corporation (NYSE:IPHI) was in 34 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 46. Our calculations also showed that IPHI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 46 hedge funds in our database with IPHI holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. 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. Now we’re going to take a look at the fresh hedge fund action surrounding Inphi Corporation (NYSE:IPHI).

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

At Q3’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IPHI over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is IPHI A Good Stock To Buy?

The largest stake in Inphi Corporation (NYSE:IPHI) was held by D E Shaw, which reported holding $85.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $32 million position. Other investors bullish on the company included Arrowstreet Capital, Two Sigma Advisors, and Driehaus Capital. In terms of the portfolio weights assigned to each position Boardman Bay Capital Management allocated the biggest weight to Inphi Corporation (NYSE:IPHI), around 6.99% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, dishing out 2.94 percent of its 13F equity portfolio to IPHI.

Because Inphi Corporation (NYSE:IPHI) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedge funds that slashed their positions entirely heading into Q4. Interestingly, Rob Citrone’s Discovery Capital Management dropped the largest position of the “upper crust” of funds followed by Insider Monkey, worth an estimated $37.3 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $19.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 12 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Inphi Corporation (NYSE:IPHI). These stocks are Post Holdings Inc (NYSE:POST), Tenaris S.A. (NYSE:TS), Aluminum Corp. of China Limited (NYSE:ACH), Ares Management Corp (NYSE:ARES), Polaris Inc. (NYSE:PII), Stericycle Inc (NASDAQ:SRCL), and Axon Enterprise, Inc. (NASDAQ:AAXN). All of these stocks’ market caps are closest to IPHI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
POST 30 1309099 -4
TS 12 132054 0
ACH 4 4360 -2
ARES 16 412126 -4
PII 39 548509 5
SRCL 25 782931 2
AAXN 32 527511 -7
Average 22.6 530941 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $531 million. That figure was $343 million in IPHI’s case. Polaris Inc. (NYSE:PII) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 4 bullish hedge fund positions. Inphi Corporation (NYSE:IPHI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IPHI is 58. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on IPHI as the stock returned 43.4% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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