Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Luminex Corporation (NASDAQ:LMNX) was in 14 hedge funds’ portfolios at the end of September. LMNX has experienced a decrease in hedge fund sentiment of late. There were 21 hedge funds in our database with LMNX positions at the end of the previous quarter. At the end of this article we will also compare LMNX to other stocks including State Auto Financial (NASDAQ:STFC), Scientific Games Corp (NASDAQ:SGMS), and Synergy Pharmaceuticals Inc (NASDAQ:SGYP) to get a better sense of its popularity.
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.
With all of this in mind, we’re going to take a look at the new action surrounding Luminex Corporation (NASDAQ:LMNX).
Hedge fund activity in Luminex Corporation (NASDAQ:LMNX)
Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in LMNX at the beginning of this year. So, let’s review 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, RGM Capital, led by Robert G. Moses, holds the largest position in Luminex Corporation (NASDAQ:LMNX). RGM Capital has a $39.2 million position in the stock, comprising 4.4% of its 13F portfolio. Coming in second is Renaissance Technologies, one of the largest hedge funds in the world, holding a $30.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise D. E. Shaw’s D E Shaw, Justin John Ferayorni’s Tamarack Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that RGM Capital 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.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually sold off their positions entirely. Interestingly, Neil Chriss’s Hutchin Hill Capital sold off the largest investment of all the hedgies tracked by Insider Monkey, totaling about $0.8 million in stock. Peter Muller’s fund, PDT Partners, also said goodbye to its stock, about $0.6 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Luminex Corporation (NASDAQ:LMNX) but similarly valued. We will take a look at State Auto Financial (NASDAQ:STFC), Scientific Games Corp (NASDAQ:SGMS), Synergy Pharmaceuticals Inc (NASDAQ:SGYP), and Hyster-Yale Materials Handling Inc (NYSE:HY). All of these stocks’ market caps resemble LMNX’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $110 million in LMNX’s case. Scientific Games Corp (NASDAQ:SGMS) is the most popular stock in this table. On the other hand State Auto Financial (NASDAQ:STFC) is the least popular one with only 4 bullish hedge fund positions. Luminex Corporation (NASDAQ:LMNX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SGMS might be a better candidate to consider taking a long position in.