Richard Mishaal‘s Rima Senvest Management acquired an additional 790,600 shares of Axcelis Technologies Inc (NASDAQ:ACLS), according to a recent filing with the Securities and Exchange Commission. The current holding comprises about 6.0 million shares valued at $18.06 million and represents about 5.29% of the company’s outstanding stock. The stock of the $329.99 million manufacturer of processing equipment used in the fabrication of semiconductor chips has appreciated by over 17% so far this year. In contrast, the Semiconductor Equipment & Materials industry has only appreciated by 0.51% during the same period.
Professional money managers, among those that we track, have been increasingly bullish on Axcelis Technologies Inc (NASDAQ:ACLS). A total of 15 hedge funds had an aggregate investment of $26.12 million in the company at the end of March compared with ten firms with $26.92 million in holdings at the end of the previous quarter. The dip in capital is explained by the 7% drop in shares during the first quarter, so hedgies were not actually selling out of the stock. The bullish hedge funds certainly came out ahead with this pick, as it’s gained over 30% since the end of the first quarter.
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First a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 135% since the launch of our small-cap strategy compared to less than 60% for the S&P 500 (see the details).
Insider trading activity can provide valuable insights into the expectations of a company’s management with regards to its future prospects. Although no insider purchases have been made this year, there has been some insider selling during the last six months, including by Lynnette Fallon, Axcelis’ Executive Vice President, who sold about 124,000 shares, and by Chief Financial Officer Kevin Brewer, who sold 71,000 shares. However, unlike insider purchases, insider sales do not provide a clear picture of the company’s prospects since they can be carried out for a wide variety of reasons.
How are hedge funds trading Axcelis Technologies Inc (NASDAQ:ACLS)?
At the end of the first quarter, a total of 15 hedge funds tracked by Insider Monkey were long in this stock, a change of 50% from one quarter earlier. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially.
According to hedge fund intelligence website Insider Monkey, the subject of our article, Rima Senvest Management, holds the most valuable position in Axcelis Technologies Inc (NASDAQ:ACLS). Coming in second is Royce & Associates, managed by Chuck Royce, which held a $5 million position; less than 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds that hold long positions consist of Paul Solit and Eric Singer’s Potomac Capital Management, Peter Keane‘s Keane Capital Management, and Mark Coe‘s Coe Capital Management.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Coe Capital Management, managed by Mark Coe, assembled the largest position in Axcelis Technologies Inc (NASDAQ:ACLS). Coe Capital Management had million invested in the company at the end of the quarter. Jonathan Dawson’s Southport Management also made a $494,000 investment in the stock during the quarter. The following funds were also among the new Axcelis investors: Ken Griffin’s Citadel Investment Group, John Zaro’s Bourgeon Capital, and Glenn Russell Dubin’s Highbridge Capital Management.
Given the hedge fund sentiment and a reasonable forward earnings multiple of 15.58, Axcelis Technologies Inc (NASDAQ:ACLS) could prove to be a valuable investment in the future. We have a buy rating on the stock and suggest following the smart money into this stock.
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