In its latest 13D filing, Eric Singer’s Vertex Capital Advisors LLC has disclosed that it now owns around 1.25 million shares in Numerex Corp. (NASDAQ:NMRX), which is 6.6% of the total shares of the enterprise solutions company. On June 11, Vertex Capital Advisors’ filing at that time showed that the hedge fund owned around 1.06 million shares in NUMEREX, 5.6% of the company’s outstanding common stock, which was a new position for the fund. The latest purchase ups its stake in the company by another 17% and more than most funds, its growing investment should be duly considered as to whether Numerex could be a good stock to invest in going forward. That’s because Singer, who was previously with Paul Solit‘s Potomac Capital Management, has a strong history of successful activist involvement in companies and tends to take a strong activist stance with the majority of his investments, which means we can expect his involvement in pushing Numerex to improve its operations. Not surprisingly, Numerex ranks as Potomac Capital’s top pick, and Singer likely had carry-over interest in it from his time there, as has been shown in a number of other stocks the two funds now share investments in.
It is well-known that hedge funds have under-performed the S&P 500 based on net returns over the past several years. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning over 142% and beating the market by more than 82 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
Hedge fund sentiment is neutral on Numerex Corp. (NASDAQ:NMRX). During the first quarter, the number of funds with long positions in the stock increased by 1, while the aggregate investment of the funds declined slightly to $20.88 million from $21.10 million, despite shares of Numerex increasing by 3% during the first quarter.
Another important metric that we track is insider sentiment, as studies have shown a correlation between insider purchases and shares of that company having a stronger short-term performance on average than other stocks. When it comes to insider sentiment, we see some positive action, with CEO and Chairman of the Board Stratton Nicolaines buying 5,000 shares of Numerex at $8.62 per share on May 26, while Secretary & General Counsel Andrew Ryan purchased 2,000 shares of his own on the same date, in two separate transactions. There has also been some selling, with Director James Constantine selling 2,000 shares through four transactions in 2015. Overall, we consider the recent purchases to be very positive indicators on the stock.
Let’s move on to a more detailed look at hedge fund activity in the stock.