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Should You Avoid Immersion Corporation (IMMR)?

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 Immersion Corporation (NASDAQ:IMMR) based on that data and determine whether they were really smart about the stock.

Immersion Corporation (NASDAQ:IMMR) was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. IMMR has seen a decrease in support from the world’s most elite money managers lately. There were 14 hedge funds in our database with IMMR holdings at the end of the previous quarter. Our calculations also showed that IMMR 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

William Martin Raging Capital Management

William Martin of Raging Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the new hedge fund action encompassing Immersion Corporation (NASDAQ:IMMR).

What does smart money think about Immersion Corporation (NASDAQ:IMMR)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in IMMR over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Raging Capital Management held the most valuable stake in Immersion Corporation (NASDAQ:IMMR), which was worth $25.9 million at the end of the third quarter. On the second spot was VIEX Capital Advisors which amassed $20.1 million worth of shares. Shannon River Fund Management, Rubric Capital Management, and Fondren Management 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 VIEX Capital Advisors allocated the biggest weight to Immersion Corporation (NASDAQ:IMMR), around 24.11% of its 13F portfolio. Raging Capital Management is also relatively very bullish on the stock, setting aside 19.59 percent of its 13F equity portfolio to IMMR.

Because Immersion Corporation (NASDAQ:IMMR) has witnessed declining sentiment from the smart money, we can see that there exists a select few hedge funds that elected to cut their positions entirely by the end of the first quarter. Interestingly, Minhua Zhang’s Weld Capital Management cut the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $0.5 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $0.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Immersion Corporation (NASDAQ:IMMR). These stocks are Concrete Pumping Holdings, Inc. (NASDAQ:BBCP), Fossil Group Inc (NASDAQ:FOSL), Smith Micro Software, Inc. (NASDAQ:SMSI), and Central Valley Community Bancorp (NASDAQ:CVCY). This group of stocks’ market values match IMMR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBCP 8 34588 2
FOSL 9 21846 -5
SMSI 9 4953 1
CVCY 5 3864 -2
Average 7.75 16313 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $64 million in IMMR’s case. Fossil Group Inc (NASDAQ:FOSL) is the most popular stock in this table. On the other hand Central Valley Community Bancorp (NASDAQ:CVCY) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Immersion Corporation (NASDAQ:IMMR) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately IMMR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IMMR were disappointed as the stock returned 16.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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