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Should You Avoid AXT Inc (AXTI)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of AXT Inc (NASDAQ:AXTI) based on that data.

AXT Inc (NASDAQ:AXTI) investors should be aware of a decrease in hedge fund interest recently. AXTI was in 7 hedge funds’ portfolios at the end of March. There were 8 hedge funds in our database with AXTI holdings at the end of the previous quarter. Our calculations also showed that AXTI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the new hedge fund action encompassing AXT Inc (NASDAQ:AXTI).

Hedge fund activity in AXT Inc (NASDAQ:AXTI)

Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in AXTI a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is AXTI A Good Stock To Buy?

More specifically, Royce & Associates was the largest shareholder of AXT Inc (NASDAQ:AXTI), with a stake worth $5.8 million reported as of the end of September. Trailing Royce & Associates was Portolan Capital Management, which amassed a stake valued at $2.2 million. Ancora Advisors, Renaissance Technologies, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Portolan Capital Management allocated the biggest weight to AXT Inc (NASDAQ:AXTI), around 0.34% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to AXTI.

Because AXT Inc (NASDAQ:AXTI) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedge funds that elected to cut their full holdings last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $0.3 million in stock. D. E. Shaw’s fund, D E Shaw, also sold off its stock, about $0.2 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to AXT Inc (NASDAQ:AXTI). We will take a look at Baytex Energy Corp (NYSE:BTE), vTv Therapeutics Inc (NASDAQ:VTVT), Xinyuan Real Estate Co., Ltd. (NYSE:XIN), and L.B. Foster Company (NASDAQ:FSTR). All of these stocks’ market caps are similar to AXTI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BTE 6 2528 -6
VTVT 4 2757 1
XIN 6 1174 -1
FSTR 11 30584 -1
Average 6.75 9261 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $10 million in AXTI’s case. L.B. Foster Company (NASDAQ:FSTR) is the most popular stock in this table. On the other hand vTv Therapeutics Inc (NASDAQ:VTVT) is the least popular one with only 4 bullish hedge fund positions. AXT Inc (NASDAQ:AXTI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on AXTI as the stock returned 63.6% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.