Is SMCI A Good Stock To Buy Now?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Super Micro Computer, Inc. (NASDAQ:SMCI) in this article.

Is SMCI a good stock to buy now? Investors who are in the know were becoming less confident. The number of long hedge fund positions shrunk by 3 lately. Super Micro Computer, Inc. (NASDAQ:SMCI) was in 19 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. Our calculations also showed that SMCI 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). There were 22 hedge funds in our database with SMCI positions at the end of the second quarter.

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.

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

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 take a look at the fresh hedge fund action surrounding Super Micro Computer, Inc. (NASDAQ:SMCI).

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

At the end of September, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SMCI over the last 21 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Empyrean Capital Partners was the largest shareholder of Super Micro Computer, Inc. (NASDAQ:SMCI), with a stake worth $94.8 million reported as of the end of September. Trailing Empyrean Capital Partners was Oaktree Capital Management, which amassed a stake valued at $86.7 million. Madison Avenue Partners, Hawk Ridge Management, and Park West Asset Management 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 Madison Avenue Partners allocated the biggest weight to Super Micro Computer, Inc. (NASDAQ:SMCI), around 20.1% of its 13F portfolio. Nokomis Capital is also relatively very bullish on the stock, designating 4.05 percent of its 13F equity portfolio to SMCI.

Because Super Micro Computer, Inc. (NASDAQ:SMCI) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of money managers that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Jerome L. Simon’s Lonestar Capital Management sold off the biggest stake of all the hedgies watched by Insider Monkey, valued at close to $5.4 million in stock. Greg Eisner’s fund, Engineers Gate Manager, also cut its stock, about $0.8 million worth. These moves are intriguing to say the least, 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 similar to Super Micro Computer, Inc. (NASDAQ:SMCI). These stocks are Kontoor Brands, Inc. (NYSE:KTB), Horace Mann Educators Corporation (NYSE:HMN), The Geo Group, Inc. (NYSE:GEO), Sykes Enterprises, Incorporated (NASDAQ:SYKE), Murphy Oil Corporation (NYSE:MUR), LTC Properties Inc (NYSE:LTC), and Intercept Pharmaceuticals Inc (NASDAQ:ICPT). This group of stocks’ market valuations resemble SMCI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KTB 18 81103 0
HMN 13 18160 7
GEO 12 65539 -8
SYKE 13 47344 -5
MUR 24 78785 9
LTC 9 10133 -6
ICPT 20 166374 -2
Average 15.6 66777 -0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.6 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $423 million in SMCI’s case. Murphy Oil Corporation (NYSE:MUR) is the most popular stock in this table. On the other hand LTC Properties Inc (NYSE:LTC) is the least popular one with only 9 bullish hedge fund positions. Super Micro Computer, Inc. (NASDAQ:SMCI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SMCI is 59.1. 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 December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on SMCI as the stock returned 10.8% since the end of Q3 (through 12/14) 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.