Should You Add Hollysys Automation Technologies Ltd (HOLI) to Your Portfolio?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Hollysys Automation Technologies Ltd (NASDAQ:HOLI).

Is Hollysys Automation Technologies Ltd (NASDAQ:HOLI) a bargain? The best stock pickers seem to be getting more confident. During the third quarter, the number of investors from our database long the stock inched up by one. At the end of this article we will also compare HOLI to other stocks including WMS Industries Inc. (NYSE:WMS), Magellan Health Services Inc (NASDAQ:MGLN), and Progress Software Corporation (NASDAQ:PRGS) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, we’re going to take a look at the fresh action regarding Hollysys Automation Technologies Ltd (NASDAQ:HOLI).

How are hedge funds trading Hollysys Automation Technologies Ltd (NASDAQ:HOLI)?

Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey were long Hollysys Automation Technologies, versus 14 funds at the end of June. By comparison, 13 hedge funds held shares or bullish call options in HOLI heading into this year. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Hugh Sloane’s Sloane Robinson Investment Management has the number one position in Hollysys Automation Technologies Ltd (NASDAQ:HOLI), worth close to $32.8 million, corresponding to 17.1% of its total 13F portfolio. The second most bullish fund manager is Ian Simm’s Impax Asset Management, with a $26.7 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Chuck Royce’s Royce & Associates, and Noam Gottesman’s GLG Partners. We should note that two of these hedge funds (Sloane Robinson Investment Management and Impax Asset Management) are 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, key hedge funds were leading the bulls’ herd. Renaissance Technologies, one of the top hedge funds in the world, initiated the most outsized position in Hollysys Automation Technologies Ltd (NASDAQ:HOLI). Renaissance Technologies had $0.8 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Paul Tudor Jones’s Tudor Investment Corp, and Mike Vranos’ Ellington.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hollysys Automation Technologies Ltd (NASDAQ:HOLI) but similarly valued. We will take a look at WMS Industries Inc. (NYSE:WMS), Magellan Health Services Inc (NASDAQ:MGLN), Progress Software Corporation (NASDAQ:PRGS), and CYS Investments Inc (NYSE:CYS). This group of stocks’ market caps are similar to HOLI’s market cap.

As you can see these stocks had an average of 16 funds with bullish positions and the average amount invested in these stocks was $158 million, compared to $84 million in HOLI’s case. Magellan Health Services Inc (NASDAQ:MGLN) is the most popular stock in this table, while CYS Investments Inc (NYSE:CYS) is the least popular one with only 12 bullish hedge fund positions. Hollysys Automation Technologies Ltd (NASDAQ:HOLI) 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 Magellan Health Services Inc (NASDAQ:MGLN) might be a better candidate to consider taking a long position in.

Disclosure: none