Should You Mimic the Smart Money’s Buying Spree of Sensient Technologies Corporation (SXT)?

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: Sensient Technologies Corporation (NYSE:SXT).

Sensient Technologies Corporation (NYSE:SXT) investors should be aware of an increase in enthusiasm from smart money lately. SXT was in 16 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with SXT holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Olin Corporation (NYSE:OLN), Cameco Corporation (USA) (NYSE:CCJ), and Cavium Inc (NASDAQ:CAVM) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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What have hedge funds been doing with Sensient Technologies Corporation (NYSE:SXT)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 78% leap from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SXT over the last 5 quarters, which fell heavily in Q1 before the recent rebound. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in Sensient Technologies Corporation (NYSE:SXT), worth close to $66.2 million. The second most bullish fund manager is Marshall Wace LLP, led by Paul Marshall and Ian Wace, holding a $31.2 million position. Some other professional money managers with similar optimism include Andrew Sandler’s Sandler Capital Management, Robert Joseph Caruso’s Select Equity Group, and Millennium Management, one of the 10 largest hedge funds in the world. We should note that none of these hedge funds 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.