Is SGH A Good Stock To Buy Now?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding SMART Global Holdings, Inc. (NASDAQ:SGH).

Is SGH a good stock to buy now? Hedge fund interest in SMART Global Holdings, Inc. (NASDAQ:SGH) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SGH 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 SGH to other stocks including Heritage Financial Corporation (NASDAQ:HFWA), Westlake Chemical Partners LP (NYSE:WLKP), and Third Point Reinsurance Ltd (NYSE:TPRE) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Stark Crosslink Capital

Michael Stark of Crosslink Capital

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 we’re going to go over the new hedge fund action encompassing SMART Global Holdings, Inc. (NASDAQ:SGH).

Do Hedge Funds Think SGH Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in SGH a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Silver Lake Partners, managed by Jim Davidson, Dave Roux and Glenn Hutchins, holds the largest position in SMART Global Holdings, Inc. (NASDAQ:SGH). Silver Lake Partners has a $253.1 million position in the stock, comprising 3.1% of its 13F portfolio. Coming in second is Seymour Sy Kaufman and Michael Stark of Crosslink Capital, with a $18 million position; 3.8% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Crosslink Capital allocated the biggest weight to SMART Global Holdings, Inc. (NASDAQ:SGH), around 3.84% of its 13F portfolio. Silver Lake Partners is also relatively very bullish on the stock, designating 3.11 percent of its 13F equity portfolio to SGH.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium 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 ExodusPoint Capital).

Let’s now review hedge fund activity in other stocks similar to SMART Global Holdings, Inc. (NASDAQ:SGH). We will take a look at Heritage Financial Corporation (NASDAQ:HFWA), Westlake Chemical Partners LP (NYSE:WLKP), Third Point Reinsurance Ltd (NYSE:TPRE), Maverix Metals Inc. (NYSE:MMX), Bain Capital Specialty Finance, Inc. (NYSE:BCSF), LeMaitre Vascular Inc (NASDAQ:LMAT), and Argan, Inc. (NYSE:AGX). This group of stocks’ market caps are closest to SGH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HFWA 6 14208 -1
WLKP 2 1933 -2
TPRE 19 29902 1
MMX 8 91332 3
BCSF 11 16870 0
LMAT 7 5081 -2
AGX 13 61268 2
Average 9.4 31513 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.4 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $288 million in SGH’s case. Third Point Reinsurance Ltd (NYSE:TPRE) is the most popular stock in this table. On the other hand Westlake Chemical Partners LP (NYSE:WLKP) is the least popular one with only 2 bullish hedge fund positions. SMART Global Holdings, Inc. (NASDAQ:SGH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SGH is 63.6. 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 SGH as the stock returned 29.7% 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.