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Were Hedge Funds Right About HEICO Corporation (HEI)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding HEICO Corporation (NYSE:HEI).

Is HEICO Corporation (NYSE:HEI) ready to rally soon? The best stock pickers are in an optimistic mood. The number of long hedge fund bets increased by 11 lately. Our calculations also showed that HEI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the recent hedge fund action regarding HEICO Corporation (NYSE:HEI).

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

At the end of the fourth quarter, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in HEI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of HEICO Corporation (NYSE:HEI), with a stake worth $146.5 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $140.5 million. Chilton Investment Company, Select Equity Group, and Royce & Associates 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 Silver Heights Capital Management allocated the biggest weight to HEICO Corporation (NYSE:HEI), around 28.86% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 4.06 percent of its 13F equity portfolio to HEI.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the most valuable position in HEICO Corporation (NYSE:HEI). Point72 Asset Management had $30.9 million invested in the company at the end of the quarter. Bernard Selz’s Selz Capital also initiated a $12.3 million position during the quarter. The other funds with new positions in the stock are Ben Gambill’s Tiger Eye Capital, Dmitry Balyasny’s Balyasny Asset Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HEICO Corporation (NYSE:HEI) but similarly valued. These stocks are Cboe Global Markets, Inc. (NASDAQ:CBOE), Plains All American Pipeline, L.P. (NYSE:PAA), Galapagos NV (NASDAQ:GLPG), and Darden Restaurants, Inc. (NYSE:DRI). This group of stocks’ market caps match HEI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBOE 27 1050257 1
PAA 12 168993 -5
GLPG 14 117885 1
DRI 33 730138 2
Average 21.5 516818 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $517 million. That figure was $1205 million in HEI’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks HEICO Corporation (NYSE:HEI) 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 lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately HEI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HEI were disappointed as the stock returned -29.2% during the three months of 2020 (through April 20th) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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