Is Tower Semiconductor Ltd. (USA) (TSEM) a Good Buy?

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM) and see how it was affected.

Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM) investors should be aware of a decrease in enthusiasm from smart money recently. TSEM was in 18 hedge funds’ portfolios at the end of the third quarter of 2015. There were 24 hedge funds in our database with TSEM positions at the end of the previous quarter. 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 First Merchants Corporation (NASDAQ:FRME), Rogers Corporation (NYSE:ROG), and Boise Cascade Co (NYSE:BCC) to gather more data points.

In the eyes of most stock holders, hedge funds are viewed as underperforming, old investment tools of years past. While there are more than an 8000 funds trading at the moment, Our researchers choose to focus on the aristocrats of this club, around 700 funds. These investment experts administer most of the smart money’s total capital, and by tracking their top picks, Insider Monkey has uncovered a few investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, we’re going to take a peek at the new action surrounding Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM).

Hedge fund activity in Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM)

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Rima Senvest Management, managed by Richard Mashaal, holds the biggest position in Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM). Rima Senvest Management has a $73.8 million position in the stock, comprising 5.3% of its 13F portfolio. Sitting at the No. 2 spot is Alkeon Capital Management, managed by Panayotis Takis Sparaggis, which holds a $18.6 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions contain George McCabe’s Portolan Capital Management, Joseph A. Jolson’s Harvest Capital Strategies and Robert B. Gillam’s McKinley Capital Management.

Since Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM) has faced falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of funds who sold off their entire stakes by the end of the third quarter. Interestingly, Richard Driehaus’ Driehaus Capital dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $9.2 million in stock, and Mark Kingdon’s Kingdon Capital was right behind this move, as the fund cut about $8.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 6 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM) but similarly valued. We will take a look at First Merchants Corporation (NASDAQ:FRME), Rogers Corporation (NYSE:ROG), Boise Cascade Co (NYSE:BCC), and Semtech Corporation (NASDAQ:SMTC). This group of stocks’ market values are similar to TSEM’s market value.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $149 million in TSEM’s case. Boise Cascade Co (NYSE:BCC) is the most popular stock in this table. On the other hand First Merchants Corporation (NASDAQ:FRME) is the least popular one with only 8 bullish hedge fund positions. Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BCC might be a better candidate to consider a long position.