Is Power Integrations Inc (POWI) A Good Stock to Buy?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Power Integrations Inc (NASDAQ:POWI).

Power Integrations Inc (NASDAQ:POWI) was in 9 hedge funds’ portfolios at the end of the third quarter of 2016. POWI has seen a decrease in hedge fund sentiment in recent months. There were 12 hedge funds in our database with POWI positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Semtech Corporation (NASDAQ:SMTC), South State Corporation (NASDAQ:SSB), and RBC Bearings Incorporated (NASDAQ:ROLL) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

What have hedge funds been doing with Power Integrations Inc (NASDAQ:POWI)?

At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a 25% drop from one quarter earlier. The graph below displays the number of hedge funds with bullish positions in POWI over the last 5 quarters, which has fluctuated between 8 and 13 bullish hedge fund positions. So, let’s examine 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, Ian Simm’s Impax Asset Management has the number one position in Power Integrations Inc (NASDAQ:POWI), worth close to $45.8 million, accounting for 2.1% of its total 13F portfolio. Sitting at the No. 2 spot is Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $28.4 million position. Remaining professional money managers that are bullish encompass Renaissance Technologies, one of the largest hedge funds in the world, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Cliff Asness’ AQR Capital Management. We should note that Impax Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-micro-cap stocks.

Judging by the fact that Power Integrations Inc (NASDAQ:POWI) has sustained bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedgies who sold off their full holdings by the end of the third quarter. It’s worth mentioning that George Soros’ Soros Fund Management dumped the largest investment of the 700 funds tracked by Insider Monkey, valued at an estimated $6.6 million in stock. David Costen Haley’s fund, HBK Investments, also dumped its stock, about $0.4 million worth.

Let’s now take a look at hedge fund activity in other stocks similar to Power Integrations Inc (NASDAQ:POWI). These stocks are Semtech Corporation (NASDAQ:SMTC), South State Corporation (NASDAQ:SSB), RBC Bearings Incorporated (NASDAQ:ROLL), and Forum Energy Technologies Inc (NYSE:FET). This group of stocks’ market caps are closest to POWI’s market cap.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $109 million in POWI’s case. Semtech Corporation (NASDAQ:SMTC) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Power Integrations Inc (NASDAQ:POWI) is even less popular than ROLL. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None