Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Powell Industries, Inc. (NASDAQ:POWL).
Is POWL a good stock to buy now? Powell Industries, Inc. (NASDAQ:POWL) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that POWL 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). At the end of this article we will also compare POWL to other stocks including Jounce Therapeutics, Inc. (NASDAQ:JNCE), Mesabi Trust (NYSE:MSB), and VYNE Therapeutics Inc. (NASDAQ:VYNE) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let’s go over the key hedge fund action regarding Powell Industries, Inc. (NASDAQ:POWL).
Do Hedge Funds Think POWL Is A Good Stock To Buy Now?
At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in POWL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Powell Industries, Inc. (NASDAQ:POWL) was held by Renaissance Technologies, which reported holding $13.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $3.2 million position. Other investors bullish on the company included Royce & Associates, AQR Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Beddow Capital Management allocated the biggest weight to Powell Industries, Inc. (NASDAQ:POWL), around 0.22% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to POWL.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Winton Capital Management. 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 Prelude Capital (previously Springbok Capital)).
Let’s now review hedge fund activity in other stocks similar to Powell Industries, Inc. (NASDAQ:POWL). These stocks are Jounce Therapeutics, Inc. (NASDAQ:JNCE), Mesabi Trust (NYSE:MSB), VYNE Therapeutics Inc. (NASDAQ:VYNE), Diamond S Shipping Inc. (NYSE:DSSI), EZCORP Inc (NASDAQ:EZPW), Surface Oncology, Inc. (NASDAQ:SURF), and Clearfield, Inc. (NASDAQ:CLFD). All of these stocks’ market caps match POWL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $27 million in POWL’s case. Diamond S Shipping Inc. (NYSE:DSSI) is the most popular stock in this table. On the other hand Clearfield, Inc. (NASDAQ:CLFD) is the least popular one with only 3 bullish hedge fund positions. Powell Industries, Inc. (NASDAQ:POWL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for POWL is 68.3. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on POWL as the stock returned 19.7% since the end of Q3 (through 12/8) 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.