Is Xerium Technologies, Inc. (XRM) A Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Xerium Technologies, Inc. (NYSE:XRM), and what that likely means for the prospects of the company and its stock.

Is Xerium Technologies, Inc. (NYSE:XRM) a healthy stock for your portfolio? The smart money seems to be in a bullish mood. as the number of bullish hedge fund positions inched up by one last quarter. In this way, 12 funds from our database . 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 Corium International Inc (NASDAQ:CORI), Delta Apparel, Inc. (NYSEAMEX:DLA), and ArQule, Inc. (NASDAQ:ARQL) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Keeping this in mind, let’s analyze the latest action regarding Xerium Technologies, Inc. (NYSE:XRM).

Hedge fund activity in Xerium Technologies, Inc. (NYSE:XRM)

Heading into the fourth quarter of 2016, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in XRM over the last five quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Charles Paquelet’s Skylands Capital has the largest position in Xerium Technologies, Inc. (NYSE:XRM), worth close to $4.1 million, accounting for 0.6% of its total 13F portfolio. The second most bullish fund manager is Barington Capital Group, led by James A. Mitarotonda, holding a $2.8 million position; 2.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions encompass Renaissance Technologies, one of the largest hedge funds in the world, and Michael M. Rothenberg’s Moab Capital Partners. We should note that Moab Capital Partners is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, specific money managers have been driving this bullishness. Wynnefield Capital, led by Nelson Obus, established the largest position in Xerium Technologies, Inc. (NYSE:XRM). Wynnefield Capital had $2.3 million invested in the company at the end of the quarter. Chao Ku’s Nine Chapters Capital Management also initiated a $0.1 million position during the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Xerium Technologies, Inc. (NYSE:XRM) but similarly valued. We will take a look at Corium International Inc (NASDAQ:CORI), Delta Apparel, Inc. (NYSEMKT:DLA), ArQule, Inc. (NASDAQ:ARQL), and Strattec Security Corp. (NASDAQ:STRT). This group of stocks’ market values resemble XRM’s market value.

As you can see these stocks had an average of four funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $18 million in XRM’s case. ArQule, Inc. (NASDAQ:ARQL) is the most popular stock in this table. On the other hand Delta Apparel, Inc. (NYSEAMEX:DLA) is the least popular one with only two bullish hedge fund positions. Compared to these stocks Xerium Technologies, Inc. (NYSE:XRM) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None.