Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: LSI Industries, Inc. (NASDAQ:LYTS) .
LSI Industries, Inc. (NASDAQ:LYTS) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. There were 11 hedge funds in our database with LYTS holdings at the end of the previous quarter. At the end of this article we will also compare LYTS to other stocks including Trecora Resources (NYSE:TREC), Heritage Oaks Bancorp (NASDAQ:HEOP), and Orchids Paper Products Company (NYSEAMEX:TIS) to get a better sense of its popularity.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
Now, let’s analyze the fresh action regarding LSI Industries, Inc. (NASDAQ:LYTS).
Hedge fund activity in LSI Industries, Inc. (NASDAQ:LYTS)
Heading into the fourth quarter of 2016, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in LYTS heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in LSI Industries, Inc. (NASDAQ:LYTS), worth close to $19.1 million, corresponding to 0.1% of its total 13F portfolio. The second most bullish fund manager is ACK Asset Management, led by Richard S. Meisenberg, holding a $8.2 million position; 2.5% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish include Jim Simons’ Renaissance Technologies, one of the largest hedge funds in the world, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Jeffrey Bronchick’s Cove Street Capital. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Cove Street Capital initiated the largest position in LSI Industries, Inc. (NASDAQ:LYTS). Cove Street Capital had $1.2 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also initiated a $0.8 million position during the quarter. The only other fund with a new position in the stock is D E Shaw.
Let’s go over hedge fund activity in other stocks similar to LSI Industries, Inc. (NASDAQ:LYTS). We will take a look at Trecora Resources (NYSE:TREC), Heritage Oaks Bancorp (NASDAQ:HEOP), Orchids Paper Products Company (NYSEAMEX:TIS), and Carolina Financial Corp (NASDAQ:CARO). This group of stocks’ market valuations resemble LYTS’s market valuation.
|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 4 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $35 million in LYTS’s case. Trecora Resources (NYSE:TREC) is the most popular stock in this table. On the other hand Orchids Paper Products Company (NYSEAMEX:TIS) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks LSI Industries, Inc. (NASDAQ:LYTS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.