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Is Iteris Inc (ITI) 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 Iteris Inc (NYSE:ITI) based on that data and determine whether they were really smart about the stock.

Iteris Inc (NYSE:ITI) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare ITI to other stocks including Brainstorm Cell Therapeutics Inc. (NASDAQ:BCLI), At Home Group Inc. (NYSE:HOME), and Senseonics Holdings, Inc. (NYSE:SENS) to get a better sense of its popularity.

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 58 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.

Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Now let’s check out the key hedge fund action surrounding Iteris Inc (NYSE:ITI).

What does smart money think about Iteris Inc (NYSE:ITI)?

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in ITI a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is ITI A Good Stock To Buy?

Among these funds, Royce & Associates held the most valuable stake in Iteris Inc (NYSE:ITI), which was worth $5.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.1 million worth of shares. Ardsley Partners, Ancora Advisors, and Citadel Investment Group 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 Ardsley Partners allocated the biggest weight to Iteris Inc (NYSE:ITI), around 0.38% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to ITI.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: HighVista Strategies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Engineers Gate Manager).

Let’s now take a look at hedge fund activity in other stocks similar to Iteris Inc (NYSE:ITI). We will take a look at Brainstorm Cell Therapeutics Inc. (NASDAQ:BCLI), At Home Group Inc. (NYSE:HOME), Senseonics Holdings, Inc. (NYSE:SENS), and Sharps Compliance Corp. (NASDAQ:SMED). This group of stocks’ market valuations are closest to ITI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCLI 4 4001 1
HOME 14 47358 -4
SENS 7 3396 0
SMED 5 8307 4
Average 7.5 15766 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $12 million in ITI’s case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand Brainstorm Cell Therapeutics Inc. (NASDAQ:BCLI) is the least popular one with only 4 bullish hedge fund positions. Iteris Inc (NYSE:ITI) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ITI as the stock returned 48.8% in Q2 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.