We recently published a list of 15 Most Crowded Hedge Fund Stocks That Are Targeted by Short Sellers. In this article, we are going to take a look at where HEICO Corporation (NYSE:HEI) stands against other most crowded hedge fund stocks that are targeted by short sellers.
Hedge funds piling into a stock is a signal of conviction. After all, if institutional investors are backing a company, there has to be a good reason for it, right?
Things get interesting when the same stock ends up with a high short interest. Where some investors back the company to become successful, others bet on its downfall. This contradiction is often eagerly tracked by investors, as it can potentially lead to explosive moves to either side.
Consider, for instance, a scenario where a stock with a high short interest and a high hedge fund holding starts going up. As everyone rushes to buy more of the already popular stock, short sellers rush to close their positions, triggering a strong bull rally.
We decided to shortlist stocks that were the most likely candidates for such a rally. To come up with our list of 15 most crowded hedge fund stocks that are targeted by short sellers, we only considered stocks with a market cap of at least $1 billion and a short interest of at least 3%. We then ranked these stocks by the number of hedge funds that have the stock in their portfolio.
A fighter jet in formation, revealing the prowess of the companies defense arm.
Number of Hedge Fund Holders: 67
Short Interest: 4.02%
HEICO Corporation (NYSE:HEI) is an aerospace and defense company. Its stock has outperformed the market so far this year, but a high short interest is keeping investors on edge. HEI trades at a PE of 65, above its 5-year average of 60.4. This high valuation is in part driving the short sellers’ confidence, though the hedge funds aren’t buying the stock without reason either.
HEICO Corporation (NYSE:HEI) is one of those stocks where the active management itself has a stake. The Mendelson family has been running the company for well over three decades and hasn’t done a bad job. Moreover, the stock incentives structure for employees means every employee feels a part of the company, preferring to take stock when given the opportunity.
It is the future growth that is keeping the valuation high in HEICO’s case. The company’s Flight Support Group has grown at a long-term average of 7% while other segments have shown even better growth in the recent past. Operating margins continue to go up, once again demonstrating the management’s abilities. So, what are the short sellers looking at in the stock?
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