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Is SeaChange International (SEAC) A Good Stock To Buy?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow over 700 of the best-performing investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is SeaChange International (NASDAQ:SEAC), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

SeaChange International (NASDAQ:SEAC) investors should be aware of a decrease in hedge fund sentiment recently. 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 FreightCar America, Inc. (NASDAQ:RAIL), Avalanche Biotechnologies Inc (NASDAQ:AAVL), and Sparton Corporation (NYSE:SPA) to gather more data points.

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In the eyes of most market participants, hedge funds are perceived as underperforming, outdated investment tools of years past. While there are more than an 8000 funds with their doors open at present, Our experts look at the crème de la crème of this club, approximately 700 funds. These investment experts administer bulk of the smart money’s total asset base, and by paying attention to their matchless investments, Insider Monkey has brought to light a number of investment strategies that have historically beaten the broader indices. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Now, we’re going to take a gander at the new action encompassing SeaChange International (NASDAQ:SEAC).

How are hedge funds trading SeaChange International (NASDAQ:SEAC)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 21% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in SeaChange International (NASDAQ:SEAC), worth close to $15.8 million, corresponding to 0.1% of its total 13F portfolio. The second most bullish fund manager is Roumell Asset Management, led by Jim Roumell, holding a $9.1 million position; the fund has 18.4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions comprise Jim Simons’ Renaissance Technologies, John Zaro’s Bourgeon Capital and Thomas E. Claugus’ GMT Capital.

Since SeaChange International (NASDAQ:SEAC) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds who were dropping their full holdings by the end of the third quarter. Intriguingly, Glenn W. Welling’s Engaged Capital said goodbye to the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $3.7 million in stock. Mark Coe’s fund, Coe Capital Management, also sold off its stock, about $0.8 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SeaChange International (NASDAQ:SEAC) but similarly valued. These stocks are FreightCar America, Inc. (NASDAQ:RAIL), Avalanche Biotechnologies Inc (NASDAQ:AAVL), Sparton Corporation (NYSE:SPA), and Johnson Outdoors Inc. (NASDAQ:JOUT). This group of stocks’ market values are similar to SEAC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RAIL 14 13360 3
AAVL 19 54524 -3
SPA 6 20340 -1
JOUT 4 4296 -1

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $23 million, which is lower than the $50 million in SEAC’s case. Avalanche Biotechnologies Inc (NASDAQ:AAVL) is the most popular stock in this table, while Johnson Outdoors Inc. (NASDAQ:JOUT) is the least popular one with only 4 bullish hedge fund positions. By comparison, SeaChange International (NASDAQ:SEAC) registers a hedge fund interest close to the average. However, we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AAVL might be a better candidate to consider a long position.

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