AEGOF - What Mid-Cap Stocks Are Institutions And Hedge Funds Buying?

2023-12-05 14:25:03 ET

Summary

• Analyzing 13F filings can provide a comprehensive overview of market sentiment and provide a stronger basis for making better-informed investment decisions.
• Today, we analyze and aggregate 13F filings from the end of the third quarter, seeking out the winners amongst mid-cap companies.
• Camtek Ltd., NexGen Energy, Modine Manufacturing Company, Celestica, and Dream Finders Homes are mid-caps that attracted the most interest from institutional investors in the third quarter.

So far, we have written a number of articles over the last year or so providing quarterly commentary and insight into the 13F filings of some of the best-known and widely recognized money managers of our time, including the likes of Michael "The Big Short" Burry , Cathie Wood , Daniel Loeb , and others. However, while often writing from a bottom-up perspective of the individual filings, we have never provided a top-down view of the aggregated 13F filings for the season.

We believe this might provide useful insight in terms of tracking "smart money" moves relating to certain industry trends as well as individual companies. That is exactly the basis of today's article, as we will be taking an in-depth look at which mid-cap publicly listed companies managed to attract the most interest from institutional-rated investors during the third quarter as we analyze the darlings of the most recent 13F filings.

For clarity, we counted the number of funds holding each ticker in the 13F universe for both Q2 and Q3 of this year. For example, in Q2, 4,416 unique filers recorded positions of one or more shares in Apple's ( AAPL ) stock. In Q3 that number fell by 121 to 4,295 or about -2.74%. In other words, we would not consider AAPL stock for the large cap focused article considering in this case institutional interest actually shrank. You can also think of the numerical change, like -121 in the case of AAPL, as the total number of new positions each quarter minus the total number of positions closed out throughout the quarter. As you'll see in the writing below, however, a number of mid-cap stocks saw significant double-digit percentage growth in institutional interest.

Camtek Ltd. ( CAMT )

• Q2 2023 Institutional Holders: 90
• Q3 2023 Institutional Holders: 143
• Percentage Increase: 58.9%
• Year-To-Date Performance: 176%

Camtek Limited is a company operating in an unusually niche segment of the market, designing and producing metrology instruments for the semiconductor industry. It offers a broad range of inspection and metrology instruments throughout the production process of semiconductor devices, covering the entire line from the front end all the way to assembly. As such, the Israeli-based firm represents an interesting back-door entry into the semiconductor space. Excellent operating results, new M&A deals, and recent Middle East conflicts all had a significant impact on Camtek's extremely volatile trading floor year. It's generated an impressive year-to-date return of 176%. They are a growing but still profitable business and have more than tripled their top line over the course of the last five years. The market is currently willing to pay an NTM EV/EBITDA of 25.30x and a NTM P/E of 29.40x for CAMT. At the tail end of the third quarter, also coinciding with the increased institutional interest in the firm, CAMT announced its plans to expand by acquiring the metrology arm of FormFactor ( FORM ). Institutional investors reporting shares of CAMT in their portfolios include the likes of Driehaus Capital Management, Oberweis Asset Management, Whale Rock Capital, G2 Investment Partners, and Collaborative Holdings Management, among others. Shares of Camtek are currently trading at around $62.

NexGen Energy ( NXE )

• Q2 2023 Institutional Holders: 132
• Q3 2023 Institutional Holders: 167
• Percentage Increase: 26.5%
• Year-To-Date Performance: 48%

The uranium market is often misunderstood, dominated by only a few companies, limited to a handful of geographies where it can be found, and even fewer of those who are exporting it today. To define uranium as a unique bet on the clean-energy revolution would be an understatement. Next-Gen Energy, incorporated in Canada, is one of the largest pure-uranium bets on the public market. The company is currently developing the " Rook I Project ," which represents an underground mine and mill located in the uranium-rich district of the mining jurisdiction in the Athabasca Basin. As a pre-stage uranium development project, NXE is still a pre-revenue company that holds a robust balance sheet and is set to reaffirm Canada as one of the most dominant uranium exporters in the world. The market has welcomed recently achieved milestones in the regulatory approval process , and the stock is up 50% year-to-date. This attracted the attention of plenty of institutional investors, including the likes of Segra Capital Management, Alpha Wave Global, Masters Capital Management, Caxton Associates, etc. NXE shares are currently trading around $6 to $7 per share on US-based stock exchanges.

Modine Manufacturing Company ( MOD )

• Q2 2023 Institutional Holders: 199
• Q3 2023 Institutional Holders: 244
• Percentage Increase: 22.6%
• Year-To-Date Performance: 161%

The third company on our list is yet another firm operating in a very niche segment of the market. Modine Manufacturing, while likely not a household name, has been providing in-house-designed systems and solutions for thermal management to the commercial, industrial, and automotive markets for a little over a century now. The company is one of the best-performing stocks of the year, having been brilliantly positioned behind tailwinds from the electric vehicle revolution and the ever-growing demand for data centers. It has generated a quite impressive year-to-date return of 161% and is rising far beyond its all-time highs. Even after the stratospheric rise in the share price, the firm is currently selling for relatively reasonable multiples, being priced by the market at an EV/EBITDA of 9.70x, a P/E of 16.20x, and a P/FCF of 23.00x. MOD has been an attractive stock among institutional investors, with notable names like Gamco Investors, Royce Investment, Driehaus Capital Management, and Jetstream Capital disclosing their ownership. Shares of Modine Manufacturing can currently be purchased for $52.60 per share.

Celestica ( CLS )

• Q2 2023 Institutional Holders: 154
• Q3 2023 Institutional Holders: 187
• Percentage Increase: 21.4%
• Year-To-Date Performance: 137%

Celestica began its life as a small-scale subsidiary of IBM ( IBM ), only for it to later be sold off and spun off as a stand-alone company. The firm operates through its two main business segments, which are separately reported as Advanced Technology Solutions and Connectivity & Cloud Solutions. Their ATS segment highly specializes in engineering and manufacturing advanced electronic systems and components for aerospace, healthcare, defense, and other industries. The CSS segment offers various connectivity and cloud solutions, including services related to data centers, cloud computing, and network infrastructure. It is the second Canadian-based company that found its way to today's list. The company offers a rather enticing valuation, with its current market price implying it's trading for an EV/EBITDA of 6.10x, a P/E of 10.20x, and a P/FCF of 35.00x. Shares of the firm are up 137% year-to-date and have attracted a broad range of institutional investors, such as the Shannon River Fund, Ardsley Advisory Partners, Donald Smith & Company, Masters Capital Management, and others. Shares of Celestica are currently trading at around $27.

Dream Finders Homes ( DFH )

• Q2 2023 Institutional Holders: 109
• Q3 2023 Institutional Holders: 130
• Percentage Increase: 19.2%
• Year-To-Date Performance: 172%

The negative macroeconomic environment created a perfect storm surrounding the real estate and home-building markets, prompting many investors to retreat to the sidelines for the time being. Dream Finders Homes was for sure one of the most impacted by the crisis; however, it also represents one of the most sensational turnaround plays. After losing three-quarters of its post-IPO valuation, DFH mounted a spectacular rally, nearly recovering all previous losses and generating a 172% year-to-date return. Other publicly listed builders, such as LGI Homes ( LGIH ) or D.R. Horton ( DHI ), experienced similar recoveries, but nowhere near what Dream Finders managed to achieve. Interestingly enough, Dream Finders is a Florida-based company founded in 2008 during the financial crisis and had its IPO in 2021, just before the market crash. It is a mid-sized regional homebuilder, primarily orienting itself to the Southeastern markets. On the back of a "land-light" land acquisition strategy, its small-scale and innovative approach allowed it to display surprising resilience to macroeconomic turmoil, which has been the key to its turnaround. Even after the recovery, DFH still appears to be priced attractively, as it is being sold for an EV/EBITDA of 5.70x and a P/E of 9.24x. This attracted the interest of Arcus Capital Partners, Hood River Capital, Tudor Investment Holdings, Capula Management, and others. DFH shares can be bought for around $26 per share.

Other stocks that managed to attract notable interest from institutional investors in the third quarter, but failed to make the short-list include companies like Immunovant ( IMVT ), Valaris Limited ( VAL ), CVR Energy ( CVI ), Freshworks ( FRSH ), Global-e Online ( GLBE ), Noble Corporation ( NE ), Remitly Global ( RELY ), Gulfport Energy ( GPOR ), Braze ( BRZE ), Sprinklr ( CXM ), among others. This quarter's biggest losers include Aegon ( AEG ), Frontline ( FRO ), RB Global ( RBA ), Apellis Pharmaceuticals ( APLS ), Advance Auto Parts ( AAP ), Copa Holdings ( CPA ), Penumbra ( PEN ), Red Rock Resorts ( RRR ), and others.

Final thoughts and conclusions

Financial markets are complex ecosystems that attract a wide range of investors of different backgrounds and goals, all the way from novice retail investors to experienced professionals. More often than not, it represents a rather lopsided affair, with retail being the small boat tied to the large one and not the other way around. As such, individual investors should seek to utilize every trick in the book, with 13F's being one of them. It is also worth pointing out again that large-scale institutional owners enter and exit positions due to a variety of reasons, often in a situation misaligned to the individual investor. The stocks we have discussed should be analyzed with this in mind. Still, the majority of interests in the discussed stocks seem to have originated from fundamental reasons, or are at least partially fundamentally based. Henceforth, it is also our belief that the companies discussed today might be worthy of your time and having additional research dedicated to them.

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