PMC-Sierra Inc (NASDAQ:PMCS): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Is PMC-Sierra Inc (NASDAQ:PMCS) undervalued? Hedge funds are in a bullish mood. The number of bullish hedge fund positions advanced by 3 lately.

According to most stock holders, hedge funds are assumed to be unimportant, outdated investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, we at Insider Monkey choose to focus on the upper echelon of this group, about 450 funds. It is estimated that this group has its hands on the majority of all hedge funds’ total asset base, and by watching their best picks, we have found a number of investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 25 percentage points in 6.5 month (check out a sample of our picks).

Equally as beneficial, optimistic insider trading sentiment is another way to break down the world of equities. There are a number of stimuli for a bullish insider to drop shares of his or her company, but only one, very clear reason why they would buy. Plenty of empirical studies have demonstrated the useful potential of this method if piggybackers know what to do (learn more here).

Now, let’s take a gander at the recent action surrounding PMC-Sierra Inc (NASDAQ:PMCS).

Hedge fund activity in PMC-Sierra Inc (NASDAQ:PMCS)

At the end of the fourth quarter, a total of 20 of the hedge funds we track were long in this stock, a change of 18% from the third quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings substantially.

According to our comprehensive database, Cadian Capital, managed by Eric Bannasch, holds the largest position in PMC-Sierra Inc (NASDAQ:PMCS). Cadian Capital has a $119 million position in the stock, comprising 3.9% of its 13F portfolio. On Cadian Capital’s heels is Relational Investors, managed by Ralph V. Whitworth, which held a $93 million position; 0.8% of its 13F portfolio is allocated to the stock. Some other hedge funds that are bullish include Ken Fisher’s Fisher Asset Management, Ryan Frick and Oliver Evans’s Dorsal Capital Management and D. E. Shaw’s D E Shaw.

Consequently, specific money managers were breaking ground themselves. Elm Ridge Capital, managed by Ron Gutfleish, initiated the most outsized position in PMC-Sierra Inc (NASDAQ:PMCS). Elm Ridge Capital had 7 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also initiated a $2 million position during the quarter. The following funds were also among the new PMCS investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ray Dalio’s Bridgewater Associates.

What have insiders been doing with PMC-Sierra Inc (NASDAQ:PMCS)?

Insider trading activity, especially when it’s bullish, is best served when the company in focus has seen transactions within the past half-year. Over the latest half-year time frame, PMC-Sierra Inc (NASDAQ:PMCS) has experienced zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

With the returns exhibited by our tactics, retail investors must always pay attention to hedge fund and insider trading activity, and PMC-Sierra Inc (NASDAQ:PMCS) is no exception.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.