Was The Smart Money Right About HEICO Corporation (HEI)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards HEICO Corporation (NYSE:HEI).

Is HEICO Corporation (NYSE:HEI) a buy right now? Hedge funds were becoming hopeful. The number of bullish hedge fund positions inched up by 7 lately. HEICO Corporation (NYSE:HEI) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 57. Our calculations also showed that HEI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 39 hedge funds in our database with HEI positions at the end of the first quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Algert of Algert Global

With all of this in mind we’re going to go over the latest hedge fund action encompassing HEICO Corporation (NYSE:HEI).

How have hedgies been trading HEICO Corporation (NYSE:HEI)?

At the end of the second quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in HEI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HEI A Good Stock To Buy?

The largest stake in HEICO Corporation (NYSE:HEI) was held by Renaissance Technologies, which reported holding $98 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $81.3 million position. Other investors bullish on the company included Select Equity Group, Gobi Capital, and Silver Heights Capital Management. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to HEICO Corporation (NYSE:HEI), around 20.27% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, dishing out 4.24 percent of its 13F equity portfolio to HEI.

As aggregate interest increased, some big names have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, established the most outsized position in HEICO Corporation (NYSE:HEI). Holocene Advisors had $33.7 million invested in the company at the end of the quarter. Blair Baker’s Precept Capital Management also initiated a $7.1 million position during the quarter. The other funds with brand new HEI positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Mark Coe’s Intrinsic Edge Capital, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as HEICO Corporation (NYSE:HEI) but similarly valued. These stocks are Alliant Energy Corporation (NASDAQ:LNT), Extra Space Storage, Inc. (NYSE:EXR), IDEX Corporation (NYSE:IEX), KeyCorp (NYSE:KEY), POSCO (NYSE:PKX), NICE Ltd (NASDAQ:NICE), and Imperial Oil Limited (NYSE:IMO). This group of stocks’ market valuations resemble HEI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LNT 23 377241 -7
EXR 27 176001 11
IEX 31 575412 -2
KEY 37 212865 -6
PKX 10 49629 -1
NICE 19 489930 -3
IMO 11 21537 -2
Average 22.6 271802 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $667 million in HEI’s case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks HEICO Corporation (NYSE:HEI) is more popular among hedge funds. Our overall hedge fund sentiment score for HEI is 84.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30% in 2020 through October 23rd and still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on HEI, though not to the same extent, as the stock returned 14.5% since the end of June (through October 23rd) and outperformed the market as well.

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