Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Sharps Compliance Corp. (NASDAQ:SMED).
Is Sharps Compliance Corp. (SMED) a good stock to buy now? SMED was in 5 hedge funds’ portfolios at the end of September. The all time high for this statistics is 5. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. SMED has experienced an increase in activity from the world’s largest hedge funds of late. There were 4 hedge funds in our database with SMED holdings at the end of June. Our calculations also showed that SMED 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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. Now let’s take a glance at the new hedge fund action encompassing Sharps Compliance Corp. (NASDAQ:SMED).
How have hedgies been trading Sharps Compliance Corp. (NASDAQ:SMED)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. By comparison, 1 hedge funds held shares or bullish call options in SMED a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Sharps Compliance Corp. (NASDAQ:SMED), which was worth $4.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.3 million worth of shares. G2 Investment Partners Management, AQR Capital Management, and Algert Coldiron Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to Sharps Compliance Corp. (NASDAQ:SMED), around 0.67% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to SMED.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. AQR Capital Management, managed by Cliff Asness, assembled the most outsized position in Sharps Compliance Corp. (NASDAQ:SMED). AQR Capital Management had $0.2 million invested in the company at the end of the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sharps Compliance Corp. (NASDAQ:SMED) but similarly valued. We will take a look at Mediwound Ltd (NASDAQ:MDWD), Colony Bankcorp Inc (NASDAQ:CBAN), SMTC Corporation (NASDAQ:SMTX), First Community Corporation (NASDAQ:FCCO), First Northwest Bancorp (NASDAQ:FNWB), Xinyuan Real Estate Co., Ltd. (NYSE:XIN), and Plumas Bancorp (NASDAQ:PLBC). All of these stocks’ market caps are closest to SMED’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $11 million in SMED’s case. Colony Bankcorp Inc (NASDAQ:CBAN) is the most popular stock in this table. On the other hand Plumas Bancorp (NASDAQ:PLBC) is the least popular one with only 1 bullish hedge fund positions. Sharps Compliance Corp. (NASDAQ:SMED) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SMED is 86. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on SMED as the stock returned 30.8% since the end of Q3 (through 11/27) 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.