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Is Tesla Even In The Auto Industry?

Sat, 08 Aug 2020 16:29:41 GMT

The standard method of determining what industry a company is in is by looking at its underlying business. By that standard, Tesla (NASDAQ:TSLA) is clearly in the auto business. Virtually all of the company’s revenues and costs are related to building, selling, and servicing automobiles. But there is another way of checking whether a company is an industry that has implications for investors. The idea is that if two companies are in the same industry, then their stock prices should tend to move together. For example, when the Covid-19 crisis arose, the stocks of all major airlines collapsed together. This raises the question of whether using this second criterion Tesla is in the auto industry. Before turning to the results, a couple caveats are in order.

Q2 2020 hedge fund letters, conferences and more

The Stock Market Is A Tide

First, all stocks tend to move together. The overall market can be thought of as a tide which raises and lowers all boats. Furthermore, during sharp declines and times of crisis, stocks move together even more closely. During the market decline from mid-February through the end of March, 498 of the 500 stocks in the S&P 500 dropped. The subsequent recovery was similar with all 500 stocks in the index posting a gain the month after the March low. Therefore, when looking at correlations between the returns on individual stocks, the impact of the market should be netted. There are a number of sophisticated ways to do this, but the simple method of simply subtracting the market return from the company’s return is a good approximation and I use it here.

Second, even if all stocks are in the same industry, some types of news will cause their stock prices to move in different directions. A prime example is the announcement of a new innovation or a new product by one company. For instance, if Apple introduces what is seen as a particularly attractive new iPhone, its stock price is likely to jump while Samsung’s is likely to fall. Even though both companies are major players in the cell phone industry, they are competitors so good news for one may be bad news for another. This is in distinction to an overall industry effect, such as the announcement of a new 5G standard, which would increase the demand for new cell phones generally. Because events that cause the stock returns of companies in a given industry to move in different directions are relatively rare, when correlations of net of market returns are calculated for companies in a given industry, they tend to be significantly positive.

The airline industry offers an example. Exhibit 1 below shows the correlations between the daily net of market returns for the major U.S. airlines, United, American, Southwest and Delta, over the period from July 31, 2019 to July 30, 2020. Given the vagaries of daily stock price movements, correlations of the net of market returns in excess of 0.35 is high and in excess of 0.60 is very high. By this standard, Exhibit 1 makes it clear that the stock market is treating all the major airlines as an industry group, the lowest correlation is 0.63.

Tesla’s Market Return Correlations vs The Auto Industry

Turning to the auto industry, the results for the major US producers, reported below, are similar with one glaring exception, Tesla. In Exhibit 2, all of the correlation exceed 0.35 except those involving Tesla. For Tesla, the highest correlation is with GM, but that is only 0.18. Tesla’s net of market returns are virtually uncorrelated with those of Chrysler (FCAU) and Ford (F).

The Tesla correlations in Exhibit 2 show that the company’s stock price dances to its own tune – it does not behave like a car company. There are a number of possible explanations for such behavior. One possibility is the stock is influenced by ebbs and flows of the sentiments of the legions of day traders who buy and sell the stock. Another is that the stock rises and falls with the mercurial statements and action of its CEO, Elon Musk. Yet another is that Tesla is somehow interpreted to be a “tech” stock so that it moves with major tech companies like Amazon and Apple not with other auto manufacturers. Related to this, some investors may think that Tesla is on the road to be some type of diversified energy/technology company and are buying the stock on this basis. It is worth noting in this regard that Tesla solar and storage revenues have been falling as a percent of total revenue. Whatever the explanation, investors should be aware that although Tesla’s profits are almost exclusively dependent on manufacturing, selling, and servicing cars, at this point in time it is not trading like a car company.

By Prof. Bradford Cornell

Disclosure: None

Troubling Signs In Second-Quarter Earnings

Sat, 08 Aug 2020 15:14:33 GMT

Second-quarter gross domestic product fell 33% (on an annualized basis) according to the Commerce Department. It took years for the United States to claw its way out of the last economic recession in 2008. With key second-quarter data points coming in, what do earnings at financial and tech companies suggest about the future economic landscape?

Q2 2020 hedge fund letters, conferences and more

The Fallout Of The Coronavirus On Second-Quarter Earnings

Let’s first take a look at the fallout of the coronavirus issue and its economic impact at US financial companies. Lenders set aside significant amounts for credit loss provisions in the second quarter (April, May and June). These credit loss provisions are put away in the expectation that more people and corporations will go delinquent on payments in the coming months and years.

JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC), as major consumer/commercial lenders, each set aside billions of dollars. JP Morgan is the lending powerhouse in the US when measured by assets. It wrote off $4.6 billion in the second quarter to shore up its balance sheet against future losses. Consequently, second-quarter earnings per share were down 51%.

Trading and investment banking activities actually increased during recent volatility. Investment banks like Goldman Sachs benefitted. Goldman’s total revenues were up from to $12.3 billion from $8.4 billion in the second quarter. Goldman’s market making revenues rose to $5.8 billion from $2.4 billion last year. Investment banking revenues went up to $2.7 billion from $1.7 billion. (Investment banking revenues increased as Goldman helped other companies shore up their balance sheet with equity or debt issuances, whereas merger and acquisition activity was weak in the second quarter.)

This revenue increase at Goldman Sachs (GS) was partially offset by a $1.6 billion provision for future credit losses. All in all, earnings per share at Goldman were up somewhat (8%) from last year’s second quarter. (Another investment bank Morgan Stanley saw similar benefits from investment banking and trading, and it took less of a provision for credit losses, so its earnings increased a whopping 59%!)

Half of the financial companies in our finance index have not regained the stock price they saw before the Great Recession of 2008 (including Bank of America, Morgan Stanley and Citi). Since that time, they have dealt with more regulations. Also, financial companies tend to grow slower than tech companies, who have been the growth stars since the 2008 recession.

Tech Companies See Continued Earnings Growth

Following this trend, most tech companies saw continued earnings growth in a time when many people stayed home. Amazon (AMZN) was the standout, with earnings almost doubling as people bought more online. Revenues may increase still, looking to the third quarter, but operating income will likely be lower as Amazon books coronavirus related costs – this is according to Amazon’s own guidance.

Second-quarter earnings at Apple (AAPL) and Facebook (FB) were also strong. Apple was held up by strong product sales, so its earnings were up 18%. Facebook continued to see user and advertising revenue growth. Earnings roughly doubled at Facebook.

One rough patch was Google’s (GOOGL) drop in revenues, due to weakened advertising – the first quarterly decline in ad revenues in its 22-year history. This led to a decrease in Google earnings of 29%, making Google the worst performer in our “Big Tech” index today. The morning after the earnings release, its stock price was down 4%.

Overall, the advertising industry has been weak. Ad agencies like Publicis, Omnicom and IPG all had lower earnings which reflected a weak environment. One digital media company, Vice, is laying off 155 employees it was reported in May. The New York Times laid off 68 people in June. The weakening environment predates the coronavirus. In 2019, the New York Times already saw a huge decline in full-year digital display ad revenues (-6%).

Taken together, there are some disconcerting signs in second-quarter earnings at financial and tech companies. One possibility for the future is that while big revenues related to balance sheet strengthening at investment banks may not recur in coming quarters, loan delinquencies may well increase across all banks. Furthermore, the weak digital advertising environment is already hurting Google and may spread to Facebook at some point and other parts of the economy.

All of the large stocks discussed are grouped in the Finance and Big Tech indexes of our app. You can track the performance of our 18 stocks and 3 indexes on a daily basis. Click here for more information on how we can help you achieve your investing goals.

Article by Price Earnings Ratio Stock Value Tracker Team

Disclosure: None

How Sony Is Fueling the Computer Vision Boom

Sat, 08 Aug 2020 14:57:45 GMT

He didn’t know it at the time, but in 1990 Eric Fossum started a revolution. In the early ‘90s, NASA was firing rockets into orbit every other month. And to take images of outer space, each spacecraft was equipped with cameras.

Q2 2020 hedge fund letters, conferences and more

The problem was, these cameras were absolutely huge—roughly as big as a double-door fridge. Cameras used on spacecraft are similar to digital cameras, except they have to be a lot tougher. And they required tons of heavy wiring to work.

So NASA hired hotshot engineer Eric Fossum straight from Yale, and tasked him with miniaturizing NASA’s cameras. Within two years, Fossum created a “camera-on-a-chip”—a new type of image sensor that was smaller and consumed 100X less power.

Image sensors are tiny computer chips that essentially give cameras a set of “eyes.” They process light from the outside world and transform it into a bunch of 1s and 0s, allowing cameras to render images. Fossum’s “camera-on-a-chip” helped NASA slash the size of its cameras. But more important, his invention laid the groundwork for digital cameras and camera phones.

Today, There’s an Image Sensor Behind Every Camera Lens

You can see the sensor inside a smartphone here:

The rise of smartphones has been a boon for the sensor industry. Before camera phones, sensors were mostly used in digital cameras. And even during their best year ever, camera sales peaked at 121 million units in 2010.

But last year 1.4 billion smartphones shipped around the world. Today over five billion people across the globe own a smartphone… and most of them have at least one image sensor inside. In 2010, total image sensor sales were under $2 billion/year. Sensor sales to smartphone makers alone will hit $8 billion this year.

And the market for image sensors is set to explode again. These days sensors aren’t only inside cameras, but cars, security cameras, medical devices, drones, grocery stores, and factories. In fact, image sensors are in practically everything today, as you can see:

Image sensor sales are expected to hit $29 billion/year by 2024 as they ride this new wave of growth.

Cameras with Brains

Remember, image sensors give cameras a set of “eyes.” These tiny chips allow machines to convert what they see in the real world into digital photographs. But having a set of eyes isn’t the same as being able to “see.”

Until recently, computers have never been able to master vision. Even in 2012, the world’s best image-recognition computer was still laughably bad at recognizing images. But Alex Krizhevsky’s “big breakthrough” changed everything. AlexNet marked the first time in history a machine could identify objects better than a human.

Now that we have computer vision, image sensors have become more important than ever. Think about what computer vision does: it transforms every camera lens into a pair of eyes that can understand what it sees.

Image sensors are no longer simply cameras that take photos. With computer vision, they’re eyeballs that allow machines to “see.” Images become a whole new input for computers—like numbers or text. Our cameras are the new keyboards. Every image and YouTube video can be searched and analyzed for the first time ever.

The powerful combination of computer vision and image sensors has handed machines a new superpower. Image sensors will soon be in practically every computer in the world—just like almost every machine is hooked up to the internet.

As demand for image sensors soars, a “hall-of-fame” disruptor stands to make billions.

Reinvented: A “Hall-of-Fame” Disruptor

Nobutoshi Kihara just wanted to listen to Beethoven’s symphonies during his long intercontinental plane trips without lugging around a giant tape player. Kihara was the co-founder of Japanese electronics giant Sony (SNE). So in 1978 he had some of its engineers build a prototype. Kihara’s idea led to the creation of one of the most successful products in history–the Sony Walkman.

In 1979, Walkman’s were flying off the shelves for $200 a piece—over $700 in today’s money. In fact, when they went on sale at Bloomingdale’s in New York City, the waiting list stretched to two months.

The Walkman was the first real portable music player. Boomboxes had been around for a while, but the handheld tape player changed how we listened to music, forever. In fact, Sony was the king of making stuff we all wanted for decades.

Millions of ‘90s kids begged Santa for a Sony PlayStation video game console. Time magazine ranks the original PlayStation as the #1 bestselling product of all time. Sony was also the mastermind inventor behind CD players, color TVs, HD camcorders, floppy disks, transistor radios, and tape recorders.

Its stock soared 500% in the ‘90s as it dominated TVs, video games, and portable music players. But then Sony ran out of big new ideas. It had a series of flops, like blue-ray DVDs. And its Walkman was disrupted by Apple’s iPod. Its stock began a long slump in 2000 that saw it shed 92% of its value over the next 13 years:

But after two decades lurking in the shadows, Sony is reinventing itself…

Sony’s Crown Jewel

Image sensors are the driving force behind Sony’s revival into a world-dominating disruptor. Sony has been making sensors for decades. Its first product was an “electronic eye” installed on All Nippon Airways jumbo jets in 1980 to project images of landing and takeoff from the cockpit.

But for years, image sensors were such a small slice of Sony’s business they were a rounding error. In fact, they got lumped in with the “other devices,” which included batteries and tape recorders.

But the growth in sensor sales over the past three years has been nothing short of remarkable. This year Sony will generate more profits from imaging than any of its other business lines. Sensors are on track to generate $1.92 billion in profits… 10% more than Sony’s long-established gaming arm.

Sony absolutely dominates the image sensor industry, accounting for over 50% of global sales:

In fact, the head of Sony’s imaging business recently told Bloomberg: “We are having to apologize to customers because we just can’t make enough.” Right now, its factories are running 24 hours a day trying to meet demand. And it’s pumping $6 billion into a new plant to boost output.

The battle among smartphone firms to make better cameras has been a boon for Sony. It controls over 70% of the smartphone sensor market. And it’s been the exclusive maker of image sensors for every iPhone since 2010.

Here’s the thing: the iPhone 4 had a single 5-megapixel camera. The newest iPhone is kitted out with three 12-megapixel cameras. Higher-resolution cameras need larger and bigger image sensor—which Sony can charge more for. So as cameras continue to improve, Sony sensor sales will keep soaring.

And when it comes to quality, Sony is in a league of its own. Its image sensors are so far ahead, it charges 2X as much as its closest competitor.

And now Sony is developing a new type of sensor that will supercharge computer vision. Sony’s DepthSense sensor enables cameras to see the world in 3D.

It works by sending out invisible laser pulses and measures how long they take to bounce back off objects. This helps cameras take clearer photos by precisely selecting where to focus, and what background to blur out.

And in computer vision terms, Sony’s 3D sensors will give machines “superhuman” vision. The world’s largest automaker, Toyota, is already using these sensors in its self-driving cars. The sensors help the car create 3D maps of roads in real time, allowing it to see roads and obstacles at 1.5 times the distance compared to existing sensors.

Sony’s 3D sensors are also inside the new Apple iPad Pro for augmented realty applications. And it will be in the new iPhone to construct a more accurate map of your face.

Right now, Sony’s world-class imaging business is flying under the radar. But as the computer vision boom takes off, I expect the stock to attract a lot of hype. And with image sensors becoming a larger part of Sony’s business, it could easily soar 300%+ in the coming years.

The Great Disruptors: 3 Breakthrough Stocks Set to Double Your Money”

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Article By Stephen McBride, Mauldin Economics

Hedge Fund and Insider Trading News: Warren Buffett, Dan Loeb, Seth Klarman, Dan Kamensky, ...

Fri, 07 Aug 2020 17:00:12 GMT

Warren Buffett, How About an Earnings Call? (Bloomberg)
Saturday is Berkshire Hathaway Inc. earnings day, but don’t count on there being many insights from Warren Buffett himself. As Berkshire prepares to report its latest operating results and an update to its even more closely followed cash figure, what investors want most of all is to hear from the Oracle of Omaha. But unlike other companies, Berkshire’s quarterly earnings aren’t that illuminating. They usually entail only a perfunctory statement of the overarching numbers, with no prepared remarks or chance to ask questions.

Pro Bankruptcy Briefing: Kamensky, Marble Ridge in Hot Water Over MyTheresa | Kuwait-backed Prysm Files for Bankruptcy | Conservative Activist Wins Latest Round in Illinois Muni Debt Dispute (The Wall Street Journal)
Good day. Dan Kamensky, founder of hedge fund Marble Ridge Capital LP, is in hot water over Richard Pachulski’s allegation the hedge-fund manager pressured Jefferies as part of his plan to secure shares in Neiman’s lucrative MyTheresa business at a steep discount. Prysm Inc., a video-screen developer backed by Kuwait’s sovereign-wealth fund, is selling part of its business in bankruptcy and handing some other operations to lenders. An appeals court has revived a challenge to $14 billion in Illinois debt, a victory for the head of a conservative think tank who had sued to block further payments on state debt.

Billionaire Former Hedge Fund Chief John Paulson to Host Big-Money Hamptons Fundraiser for Trump (CNBC)
President Donald Trump is set to attend a big-money fundraiser Saturday at the home of one of his closest Wall Street allies. Billionaire former hedge fund manager John Paulson will host Trump at his home in swanky Southampton on Long Island, N.Y., according to people with direct knowledge of the matter. Tickets for the dinner event are priced up to $500,000 per couple, an invitation says. These people declined to be named as Paulson had yet to be publicly identified as one of the hosts.

solarseven/Shutterstock.com

Billionaire Dan Loeb Lays Out his Strategy Shift to Focus on ‘Quality’ Companies — and Why $13 Billion Third Point is Big on the Growth Prospects of Amazon, Alibaba, and Disney (Business Insider)
For novice investors looking to run a value strategy, billionaire Dan Loeb recommends Joel Greenblatt‘s book “You Can Be A Stock Market Genius.” But Loeb himself has shifted away from his roots as an “event-drive, value-oriented” manager, he tells investors of $13.4 billion Third Point in his latest letter dated Thursday, taking activist positions as the investing environment continues to change.

Growth Opportunities Abound for Asia’s Private Debt Industry Despite COVID-19 Headwinds (Preqin.com)
The private debt industry in Asia has surged in recent years, supported by rising investor interest and a growing need for capital. The number of private debt investors in the region increased from 115 in 2014 to a record 477 at the end of 2019, while assets under management (AUM) held by Asia-focused private debt fund managers more than doubled from $28bn to $64bn over the same period, according to data from Preqin Pro. A booming middle class and burgeoning SME market in Asia have led to resilient economic growth, which has encouraged a shift away from traditional bank financing and toward private credit. Despite the ongoing headwinds posed by COVID-19, the private debt landscape in Asia offers attractive opportunities – especially for industry participants that understand the unique nuances of each distinct market in this diverse region.

Seth Klarman Reckons With a ‘Major Sea-Change’ (Institutional Investor)
The Baupost CEO foresees a future in which capital could lose its grip over labor. Baupost CEO Seth Klarman is no doubt an ardent capitalist, but the Covid-19 pandemic has led him to see capitalism’s failings all around us – and he thinks change is afoot.“Sometimes, right before our eyes, a major sea-change occurs,” the billionaire hedge fund manager wrote investors in a lengthy second-quarter letter that…

Healthcare Hedge Fund Rhenman Eyes “Intense” Covid-19 Vaccine Activity (Hedge Week)
Rhenman & Partners Asset Management, a Stockholm-based hedge fund firm which invests in global healthcare stocks, is optimistic about a post-US election market bounce, and points to “intense activity” among vaccine developers working on a treatment for Covid-19. The firm’s Rhenman Healthcare Equity Long/Short Fund – which trades a range of small, medium and large pharmaceuticals, biotechnology, medical technology and service company stocks – was down in July. But Henrik Rhenman, founding partner and chief investment officer, believes the traditional uncertainty that typically looms over the healthcare sector ahead of every US presidential election will give way to a strong uptick in November and December.

Why Brighthouse Financial (BHF) Stock is a Compelling Investment Case

Fri, 07 Aug 2020 16:33:57 GMT

Greenlight Capital Fund recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 1.0% for the quarter, underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Greenlight Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Greenlight Capital highlighted a few stocks and Brighthouse Financial Inc. (NASDAQ:BHF) is one of them. Brighthouse Financial Inc. (NASDAQ:BHF) is a life insurance company. Year-to-date, Brighthouse Financial Inc. (NASDAQ:BHF) stock lost 24.4% and on August 4th it had a closing price of $28.68. Here is what Greenlight Capital said:

“Take BHF, for example. In 2017, we bought the company at a $6 billion valuation. At the time, the consensus view was the company would have trouble transferring “adjusted” earnings into GAAP earnings and wouldn’t be able to return capital to shareholders until 2020. Fast forward to today: the company has since generated $6 billion of retained earnings, while repurchasing 22% of its shares. In response, the market now values the company at about $2.5 billion.

In May, the company demonstrated that it had effectively hedged the first quarter’s market turbulence. Due to a large hedging gain, the company reported $47 per share in quarterly earnings. Yes, BHF earned more than the entire price of the company in a single quarter. Moreover, it bought back 12% of the outstanding stock at depressed prices. Despite all of this and a rapidly rebounding S&P 500, BHF stock only advanced from $24.17 to $27.82 during the quarter, leaving it down 29% for the year. During the quarter, the shares barely outperformed the company’s bonds maturing in 2027, which now yield 3.3% – although the equity languished, the credit markets have reversed any pandemic-induced concerns. Perhaps we just need Dave Portnoy to select “B”, “H”, “F” out of his bag of Scrabble tiles.

We understand that book value and GAAP earnings are problematic metrics for BHF. There is a change of accounting pending next year that we expect will take out a chunk of the book value, but at a price to book ratio of 0.16x, this should not be a risk to the stock price. In addition, there is a mismatch between the GAAP accounting for hedges and the risks being hedged. As a result, we expect a large loss in the second quarter, as some of the hedge gains will be reversed due to improving market conditions – just as the first quarter resulted in record GAAP income.

Like many companies, BHF provides “adjusted” earnings that take into account the problems with GAAP accounting. On that basis, its P/E ratio is 3.3x. Management has targeted a goal of repurchasing $1.5 billion of stock by the end of 2021. It has $636 million to go. At current prices, this implies the company will retire an additional 23% of the stock over the next 18 months.”

This isn’t the first time Greenlight Capital talked about Brighthouse Financial Inc. (NASDAQ:BHF) favorably either. The investment firm has been a long time Brighthouse Financial Inc. (NASDAQ:BHF) bull. A year ago we shared Greenlight Capital’s bullish Brighthouse Financial Inc. (NASDAQ:BHF) thesis in this article.

In Q1 2020, the number of bullish hedge fund positions on Brighthouse Financial Inc. (NASDAQ:BHF) stock decreased by about 42% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Brighthouse Financial’s growth potential. Our calculations showed that Brighthouse Financial Inc. (NASDAQ:BHF) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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If You Own Recro Pharma (REPH) Stock, Should You Sell It Now?

Fri, 07 Aug 2020 16:13:24 GMT

Artko Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -11.4% for the quarter, underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Artko Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Artko Capital highlighted a few stocks and Recro Pharma Inc. (NASDAQ:REPH) is one of them. Recro Pharma Inc. (NASDAQ:REPH) is a pharma company. Year-to-date, Recro Pharma Inc. (NASDAQ:REPH) stock lost 76.7% and on August 6th it had a closing price of $4.11. Here is what Artko Capital said:

“Recro Pharma (REPH) – Recro is our other Core Portfolio significant underperformer, down over 70% from its year end 2019 peak, when we took close to two thirds of our gains off the table both on the Recro Pharma position and Baudax Bio spin-off. Nevertheless, the position remained at 10% size at the beginning of the year and its decline to approximately 30% below our cost average certainly hurt. So what caused the standard microcap roundtrip? This was essentially the case of the management not managing the market expectations. In 2019 the company grew the topline 28.5% to almost a $100mm and operating income to $32.3mm on the back of a significant competitor, Mylan, being out of the market for most of the year where Recro was able to pick up most of the market share for one of its key product lines. As 2020 began the company was caught flatfooted as Mylan came back to the market with 50% market share and two of the company’s customers discontinuing their product lines with a $4mm negative revenue impact in 2020 and $7-8mm in 2021. With the market expecting a close to $60mm EBITDA number in 2020, a subsequent guide down to a sub $30mm, and $80mm to $85mm in revenues, in February and May destroyed the management’s credibility over their ability to forecast their business and the stock is likely to be in a timeout for most of 2020.

With the stock down to low $4.00/per share range and a sub $100mm market capitalization and a now, somewhat dangerous, $90mm in debt, this now 6.0% Core Portfolio position, is likely to become a source of cash in the portfolio. We no longer expect a $20+ sale and are concerned that there may be more product revenue decline announcements in the future. However, we believe the company’s likely longer term $80mm revenue and a $10mm/$35mm EBIT/EBITDA run rates along with significant manufacturing capacity during a secular move to bring onshore drug manufacturing back to United States is worth more than the current $4.15 per share price and while this position is on its way out we will be patient with our exit strategy.”

wavebreakmedia/Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on Recro Pharma Inc. (NASDAQ:REPH) stock decreased by about 35% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Recro Pharma’s downside potential. Our calculations showed that Recro Pharma Inc. (NASDAQ:REPH) isn’t ranked among the 30 most popular stocks among hedge funds.

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Why HireQuest (HQI) Stock is a Compelling Investment Case

Fri, 07 Aug 2020 15:53:26 GMT

In the said letter, Artko Capital highlighted a few stocks and HireQuest Inc. (NASDAQ:HQI) is one of them. HireQuest Inc. (NASDAQ:HQI) operates as a staffing company. Year-to-date, HireQuest Inc. (NASDAQ:HQI) stock lost 15.1% and on August 6th it had a closing price of $6.01. Here is what Artko Capital said:

“HireQuest (HQI) – We continue to hold a significant Core Portfolio position in HireQuest, at above 13% of the portfolio, as the company’s stock held up admirably in 2020, down a little over 10% in the first half of the year. Our thesis remains unchanged and largely on track, with HireQuest, the larger acquiring entity through a reverse merger in 2019, acquiring approximately 20 owned branches from Command Center, the public company. Through sales and franchise agreements over the last year HireQuest converted the branches into franchises where at the end of March 2020 it managed 135 staffing franchises throughout the United States.

Of course, owning a staffing business in the middle of pandemic will have certain moving parts and having a number of branches closed and not generating franchise fees in the spring is unlikely to result in growth this year. However, the dynamic of having a working capital intensive franchisor business during the slowdown results in significant cash cycle release, where in the 1st quarter the $75mm market cap company generated $5.5mm in operating cash flow adding to its $4.5mm cash balance. We expect an additional $5-10mm in cash flow generation this year from both, ongoing operations of franchisee fees and notes receivable interest, and more working capital releases. Of course we’d rather see growth in the topline but given the recessionary environment building up a significant cash balance is likely to allow the company and its 44% owner and founder CEO Rick Hermanns to be strategically opportunistic. In fact, in June 2020 the company whose 68% of the shares are owned by insiders, and averages 6,600 daily average announced a 1mm share, or 7.5% of outstanding shares, buyback. The bigger number however is that this buyback represents close to 25% of the float, and we’ll be looking forward to seeing the execution of this buyback. In the meantime, the CEO and the board have made 116 insider purchases on the open market in 2020 giving us somewhat of an increased confidence level.

Its hard to predict where this company will end in 2020 with parts of the economy like hospitality essentially shut down, while other parts like homebuilding surging, however, we expect the company to continue to generate positive, ex working capital release, earnings and cash flows in 2020. Looking a few years out, with the transition to an all franchise model and a likely return of positive economic growth in late 2021/early 2022 we can see the company generating a growing $10mm+ a year in Earnings Before Interest & Taxes (EBIT) / Free Cash Flow (FCF) at 60%+ operating margins and returning this cash to shareholders via more buybacks and dividends with our intermediate term price target at above $10/share.”

Our calculations showed that HireQuest Inc. (NASDAQ:HQI) isn’t ranked among the 30 most popular stocks among hedge funds.

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Why Gaia (GAIA) Stock is a Compelling Investment Case

Fri, 07 Aug 2020 15:41:23 GMT

In the said letter, Artko Capital highlighted a few stocks and Gaia Inc (NASDAQ:GAIA) is one of them. Gaia Inc (NASDAQ:GAIA) operates a global digital video streaming subscription service and online community. Year-to-date, Gaia Inc (NASDAQ:GAIA) stock gained 54.3% and on August 6th it had a closing price of $11.96. Here is what Artko Capital said:

“Gaia (GAIA) – Our investment in GAIA continues to remain one of our largest holdings at close to 14% and for good reason. While the stock has mostly stayed flat this year (though with a major decline in March and a subsequent rebound) the business continues to deliver on our thesis on all cylinders. In late 2018 the company pivoted from being a “high growth regardless of costs” story, which ironically are the most sought after stocks in the market today, to one of slower revenue growth, from 60% to 20% a year, but one that was focused on reaching Free Cash Flow generation by June 30th, 2020 without needing to access the capital markets. Since 3rd quarter 2018, or a little over a year and a half to end of June, 2020, the company has grown its subscribers 43% to 664,000 and quarterly revenues to over 50%, at $16.2mm, on the back of strategic price increases, while cutting the Operating Cash Flow loss $8.4mm a quarter to $1.9mm in profit at the end of June. In middle of June the company updated the market on reaching its 650,000th subscriber and achieving sustainable Free Cash Flow profitability and in August of 2020 the company reported a 664,000 subscriber number as the churn continued to improve.

With Covid-19 changing both, the ways the public exercises and increasing the volume of entertainment consumption, we believe Gaia is in an excellent position to capitalize on these trends with a significant customer base and brand name, as well as substantially lower customer acquisition costs (CACs). CACs have benefited from having the high churn rate vintages from 2017 and 2018 no longer being part of the net CAC cost base as well as lower rates from the typical customer acquisition channels as the economic slowdown takes its toll on the advertising rates. We believe with the quarterly CACs and corporate expense costs staying relatively flat for the last year, while the company continues to both, grow its subscriber base and raise prices on its formerly grandfathered accounts we should begin to see the power of the operating leverage inherent in the business model as a significant part of the new revenues should fall to the bottom line as Free Cash Flow. Our expectation that by 2021 we should see EBITDA/Free Cash Flow at above $20mm and $14mm with the market beginning to appreciate the earning power of the $150mm market capitalization company by the end of 2020, re-rating it to high double digit EBITDA and high single digit revenue multiples of its streaming peers to a stock price multiples higher than it is today.”

In Q1 2020, the number of bullish hedge fund positions on Gaia Inc (NASDAQ:GAIA) stock increased by about 22% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Gaia’s growth potential. Our calculations showed that Gaia Inc (NASDAQ:GAIA) isn’t ranked among the 30 most popular stocks among hedge funds.

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Why Flotek Industries (FTK) Stock is a Compelling Investment Case

Fri, 07 Aug 2020 14:56:04 GMT

In the said letter, Artko Capital highlighted a few stocks and Flotek Industries Inc (NYSE:FTK) is one of them. Flotek Industries Inc (NYSE:FTK) manufactures and markets downhole equipment and specialty chemicals. Year-to-date, Flotek Industries Inc (NYSE:FTK) stock lost 26.5% and on August 6th it had a closing price of $1.49. Here is what Artko Capital said:

“Flotek (FTK) – Flotek continues to be a significant part of our Core Portfolio, whose representation changes from 8% to 14% as its price recovered to over a 150% from its March 2020 lows. Our original thesis on the stock was that the company, that at one point was trading at 30% to its liquid balance sheet values of cash and Net Working Capital, had an incentivized board that would force significant value creation via stock buybacks or outright liquidation. In fact, given the significant energy market implosion in the spring of 2020, we felt our thesis was much likelier to come to fruition as it was apparent that the rig count based business model into which the company sells its enhanced oil well recovery chemicals was unlikely to come back. We were initially somewhat dismayed that the company opted to hire John Gibson Jr, one of the most respected industry veterans, as CEO and Chairman of The Board instead and focus the strategy on using the $100mm+ cash pile to acquire more companies, which at the time we felt was an imprudent use of capital. However, as we have had the opportunity to have numerous conversations with Mr. Gibson and to hear his strategy and thought process, as well as learn about his background and watch him quickly make value creating moves we have decided to stick with our investment albeit at a changed thesis.

Mr. Gibson Jr, quickly recognizing that the old business model is dead on arrival and the volumes of the past were not coming back, renegotiated the supply agreement, based on old volume projections, with Archer Daniels Midland that bought the company’s Florida Chemical division, for an up front payment of $15mm that significantly reduced a much higher cash burn had the agreement remained in place. Soon after the company made a splash by purchasing JP3 Measurement for $36.5mm for a combination of balance sheet cash and shares. JP3’s product is a measurement technology that allows for operators to obtain real-time ( < 30 seconds) data on the composition and physical properties of hydrocarbons across a variety of upstream, midstream, downstream, and distribution use cases. The data is predominately used by operators to assist in process optimization efforts and boasts a diverse range of applications. The company has grown impressively in 2019 with only 3 full time sales staff and despite an upstream market pullback by focusing on the downstream market, including a milestone deal with Phillips 66, a deal we strongly suspect was brought together by Mr. Gibson himself.

So where does that leave us today? While the stock price has surged in July 2020 close to our cost basis and significantly above our spring 2020 additions, the company, at a $110mm valuation still has, by our estimates, $70mm in cash and $10-20mm in other liquid assets. The legacy chemicals business whose $80mm revenue run rate that is 50% below its peak, is likely to shrink even further and we envision it being significantly smaller but with higher gross margins and longer term contracts, with the worst case scenario the entire division being sold for patent value and/or a years worth of gross profit value in the $10-20mm range. There is of course the optionality that oil comes back and the division grows and penetrates the less rig count dependent Enhanced Oil Recovery market segment enough to have a viable economic value again but for now we believe it is priced as a free option within the business. So our real investment here, at the balance sheet price, for the ability of a very incentivized and experienced CEO and Board to grow the JP3 business into its $1b Data As A Service (DaaS) Total Addressable Market (TAM), from ~$14mm in revenues last year, with already significant hires on the business development team and with more on the way, using the CEOs extensive network to strike Phillips 66 type deals. We also expect one or two more JP3-like deals on the way to completely transform the company from an old school chemicals provider to a more high growth energy tech firm with high growth and recurring revenues. With the market still not pricing the stock above its balance sheet values, we believe the JP3 business could be worth more than double the stock price today and with significant optionality on the recovery of the chemicals business and additional successful deal wins. We are excited to see what happens from here over the next few years and feel comfortable with our downside and upsides from here to keep Flotek as one of the top positions in the portfolio.”

Lukasz Szwaj/Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on Flotek Industries Inc (NYSE:FTK) stock decreased by about 11% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Flotek’s growth potential. Our calculations showed that Flotek Industries Inc (NYSE:FTK) isn’t ranked among the 30 most popular stocks among hedge funds.

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Why Shyft Group (SHYF) Stock is a Compelling Investment Case

Fri, 07 Aug 2020 14:40:40 GMT

In the said letter, Artko Capital highlighted a few stocks and Shyft Group Inc. (NASDAQ:SHYF) is one of them. Shyft Group Inc. (NASDAQ:SHYF) is a manufacturing company. Year-to-date, Shyft Group Inc. (NASDAQ:SHYF) stock gained 7.6% and on August 6th it had a closing price of $18.26. Here is what Artko Capital said:

“Shyft Group/formerly Spartan Motors (SHYF) – Our 10% Core Portfolio holding in the leader in the fleet vehicle manufacturing market has performed relatively well this year, down approximately 20% through the end of the 2nd quarter and relatively flat for the year as of the writing of this letter, despite being down over 50% in March. Despite the tumultuous economic environment the company has continued to perform well in the 1st quarter, grew its fleet vehicle segment (FVS) backlog 187% to over $300mm and made a number of value creating strategic M&A moves over the last year.

When we originally invested in Spartan, the company consisted of three segments: FVS, Specialty Vehicles, and Emergency Response. While the former two segments have been good performers, the ER segment, despite significant efforts by the management team, was a persistent drag on performance and continuously under earned its cost of capital, barely getting above breakeven in decent economic environment. In late 2019 the company purchased Royal Truck Body, a California based manufacturer of specialty truck bodies for a net, of tax benefits, purchase price of $80mm that immediately strengthened its SV segment with significantly beefed up geographic distribution and higher margin products. Additionally, the company continued to increase its market share in the Class A Diesel Luxury Coach Market to 28% (from 26%) despite the market being down 8% in 2019. On the other hand, the ER segment just could not catch any traction over the years since we have held this investment and in 1st quarter of 2020 the company sold the segment and the Spartan Motors brand for $55mm to Rev Group.

While the sale price tag was not amazing, the two transactions transformed the company profile to a strong double-digit growth and Cash Flow Return On Assets earner. Additionally, this made Shyft Group more of a pure play on the secular theme of the “last mile delivery” industry, one that has seen parcel delivery more than double in the last four years. The package volume is expected to continue to grow at or above its 19% CAGR trend for the foreseeable future as e-commerce enjoys both secular and Covid-related tailwinds and take more share from retail sales, still at a surprisingly low 16% today.

While there may be more near term logistical challenges, not unlike what we saw in the 2nd half of 2018, we believe the company is well on its way to over a $100mm in EBIT over the next few years, a good proxy for cash flow, from our estimate of ~$50mm this year, as the lower capital intensity and higher volume throughputshould translate into a significantly more powerful operating leverage flow through to the bottom line. While we added to the stock at the March 2020 lows, we had to reduce our position back down to 10% of the portfolio on our portfolio risk management process, though we still continue to believe the company can deliver triple digit returns from today’s price levels on growth in earnings and higher multiples reserved for growth companies.”

Pixabay/ Public Domain

Our calculations showed that Shyft Group Inc. (NASDAQ:SHYF) isn’t ranked among the 30 most popular stocks among hedge funds.

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

Why Research Solutions (RSSS) Stock is a Compelling Investment Case

Fri, 07 Aug 2020 14:24:17 GMT

In the said letter, Artko Capital highlighted a few stocks and Research Solutions Inc. (NASDAQ:RSSS) is one of them. Research Solutions Inc. (NASDAQ:RSSS) is a software publishers company. Year-to-date, Research Solutions Inc. (NASDAQ:RSSS) stock lost 27.8% and on August 6th it had a closing price of $2.51. Here is what Artko Capital said:

“Research Solutions(RSSS) – Research Solutions continues to remain our biggest and highest conviction holding at close to 15% of the portfolio, its size mostly as a function of holding somewhat steady while the rest of the portfolio participated in the draw down during the spring. The company’s synergetic segments, Transactions and Platforms, continued to grow above their trendlines at 6% and 34% in the first quarter of the year, with the recurring revenue Platforms component growing at 39%. The main part of our core thesis, that the growth of the Article Galaxy platform would be the significant driver of growth in revenues and profits, continues to bear out as the company recorded a record annual recurring revenue number at $4.1mm with 374 subscriptions and signaled that its experiencing significant momentum in growth of Platforms. As we discussed previously, what makes stocks go up is growth in revenues and profits. For the last few years RSSS has used the $5-6mm in operating earnings from its slow growing and 22-23% gross margin Transactions business to invest in R&D and SG&A of its high growth and 82-83% gross margin Platforms business. During this period, the company’s combined $8 to $9mm in gross profits were used to cover its $8-9mm in fixed SG&A and R&D expenses while continuing to lower its losses every quarter, reaching breakeven this year. We have high confidence that the company is at the end stages of growing out its fixed cost base, having filled out its sales suite in the last year and in the early stages of high growth in the Platforms segment, with the expectation that each additional revenue dollar will fall to the operating earnings line and will grow in high double digits for the foreseeable future.

This is a clear example of the operating leverage concept we discussed earlier where the market underestimates the earning power of a business model, especially in under-covered small capitalization companies, until the earnings and the recurring revenue nature of the business model begin to show up in results. So where do we see this company going from here? On the downside its steady cash flowing Transactions business, which notably would have lower growth without the Platforms segment, and the $8mm in net cash on the balance sheet continue to provide good downside protection at today’s stock price and $60mm market capitalization. On the other hand, there is significant opportunity to penetrate the 700,000 corporate and academic research organization market. With Covid keeping most workers at home, this has provided a bigger opportunity for the company to demo its product in addition to increased interest in streamlining the R&D processes of research organizations. We believe that even keeping on the current revenue growth trendlines should result in significant profitability for the company with an eventual re-rating to their information services peers such as CoStar or Verisk Analytics, with similar strong defensible moats, resulting in many multiples from today’s price.

Unfortunately, as is usually the case in closely held nanocap stocks with significant insider ownership, even small moves in changes of holdings of their biggest owners, can create stock moves contrary to the company’s fundamental moves. When we originally invested in RSSS it was an Over The Counter (OTC) stock with barely a thousand shares a day traded and it had taken us over a year to slowly build up our position in the stock between $1.00 and $2.00 per share. In order for the stock to be more investable for institutional investors it needed to get uplisted to Nasdaq by adding only a couple of more million dollars to its book value equity cushion. While the company would have reached this milestone organically within a year by growing its earnings, its largest shareholder helped to speed the process along by converting their warrant position in the 1st quarter of 2020 and adding almost 2mm more shares to their already large, 25%+, holding which understandably they needed to reduce. These actions and seemingly forced liquidation by another large shareholder caused the stock price to drop over 20% in the 2nd quarter, accounting for a large part of our partnership’s negative returns in the quarter. While unfortunate in its timing, we strongly believe the aforementioned stock dynamics are temporary and should reverse as the company continues to deliver on our thesis.”

one photo/Shutterstock.com

Our calculations showed that Research Solutions Inc. (NASDAQ:RSSS) isn’t ranked among the 30 most popular stocks among hedge funds.

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

Should You Be Tempted To ‘Sell’ Altria Group (MO) Stock

Fri, 07 Aug 2020 13:57:51 GMT

In the said letter, Artko Capital highlighted a few stocks and Altria Group Inc. (NYSE:MO) is one of them. Altria Group Inc. (NYSE:MO) is one of the world’s largest producers and marketers of tobacco, cigarettes and related products. Year-to-date, Altria Group Inc. (NYSE:MO) stock lost 16.8% and on August 6th it had a closing price of $41.55. Here is what Artko Capital said:

“Altria Group (MO) – We made an 9% Core Portfolio investment in Altria group at sub $40.00 in 2019 with the view that it was a good place to park cash at an 8%+ dividend yield with liquidity and a 15- 25% annual IRR upside. When the stock reached $50+ in early 2020 we took half of our position off the table and took the rest off back at $40 in the spring 2020 as we are positioning our portfolio to have significantly higher upside in the nanocap space as the economy and the small cap markets recover over the next few years. We may come back to MO in the future as it is a solid dividend yielding investment, but as we mentioned earlier, our strategy does involve off-the-beaten-path companies with an opportunity to get repriced on growth of revenues and earnings and Altria Group’s low growth was not going to get us the returns we seek given the repricing of the value segment of the small cap markets.”

Feel Photo Art/Shutterstock.com

Last month, we published an article revealing that Brown Advisory is bearish about Altria Group Inc. (NYSE:MO) stock. The investment management firm believes that the company’s Marlboro cigarette brand will lose market share to its rivals amid the pandemic.

In Q1 2020, the number of bullish hedge fund positions on Altria Group Inc. (NYSE:MO) stock decreased by about 15% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Altria’s downside potential. Our calculations showed that Altria Group Inc. (NYSE:MO) isn’t ranked among the 30 most popular stocks among hedge funds.

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

If You Own Sharps Compliance (SMED) Stock, Should You Sell It Now?

Fri, 07 Aug 2020 13:55:04 GMT

In the said letter, Artko Capital highlighted a few stocks and Sharps Compliance Corp (NASDAQ:SMED) is one of them. Sharps Compliance Corp (NASDAQ:SMED) operates as a provider of waste management services. Year-to-date, Sharps Compliance Corp (NASDAQ:SMED) stock gained 84.6% and on August 6th it had a closing price of $7.79. Here is what Artko Capital said:

“Sharps Compliance (SMED) – 2020 was not all bad news for our holdings and we have had a chance to participate in some wild speculation of today’s markets via our position in Sharps Compliance which at one point surged almost a 100% from its year end closing price of $4.22 on the hopes that the medical waste disposal company will have an opportunity to participate in the significantly higher medical waste volumes as a result of Covid related activity. Sharps was a perfect example of our Core Portfolio strategy where we patiently added to the 10% position at what we considered “balance sheet” prices, i.e. the value of its working capital and incinerator was close to our mid $3s purchase price. In the meantime Sharps was on the cusp of significant operating leverage as a large part of their revenue growth from increased route density and opioid disposal kiosks would fall to the bottom line and the market would begin to give credit to the company for its future growth opportunities in the form of a higher stock price. As the value of our portfolio began to deteriorate significantly in March, the SMED stock surged to over $6.00 and as the position was over 20% of the overall portfolio, we took half of it off the table and added to our other positions. With the price continuing to surge past $7.00, or a 100% return in less than two years, and knowing the tendency of microcap stocks to “round trip”, we decided to book the profits for this position via a fortuitously available block sale at $7.00 as we were skeptical at the company’s ability to live up to its valuation in the near term. If the price does indeed roundtrip we will be more than happy to buy back in as we like the management team and the opportunity set.”

Dmitry Kalinovsky/Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on Sharps Compliance Corp (NASDAQ:SMED) stock increased by about 400% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Sharps Compliance’s downside potential. Our calculations showed that Sharps Compliance Corp (NASDAQ:SMED) isn’t ranked among the 30 most popular stocks among hedge funds.

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

If You Own Viad Corp (VVI) Stock, Should You Sell It Now?

Fri, 07 Aug 2020 13:52:24 GMT

In the said letter, Artko Capital highlighted a few stocks and Viad Corp (NYSE:VVI) is one of them. Viad Corp (NYSE:VVI) engages in the provision of marketing services and travel and recreation services. Year-to-date, Viad Corp (NYSE:VVI) stock lost 74.8% and on August 6th it had a closing price of $17.01. Here is what Artko Capital said:

“Viad (VVI) – In the first half of 2020, in what is likely the biggest disappointment of our partnership’s five year history, we sold our entire holding in Viad, which declined over 70% from its 2019 year end, at prices between $17 and $20, as the company’s two core businesses, global event and conference management and hotels and attractions faced, what we consider, an insurmountable road back in a post-Covid world. As we have written previously we are allergic to debt and most of the time have an expectation of a value unlocking event for an investment to qualify for inclusion in our Core Portfolio. Viad was well on its way to spinning off or selling its hereto valuable Pursuit, hotel and public attractions, business; while marginally adding to its debt levels via accretive tuck in acquisitions. However, the Coronavirus and economic events of 2020 left both of their business segments, which rely on close human interaction, in taters, likely to earn very little revenue this year and setting its earning power back a half a decade. In the meantime, the company continues to burn $10s of millions of cash, adding to their sudden dangerously high debt levels, requiring continuous covenant waivers from their lenders. A combination of leverage, a semi-permanent decline in earning power and the likely disappearance of a near term value unlocking event made holding our investment in Viad, as a Core Portfolio holding, an untenable proposition. We will keep a close eye on this company and we will be cheering for the company’s recovery from the sidelines and may potentially take a flier as a small position for our Enhanced Portfolio down the line.”

Pixabay/ Public Domain

In Q1 2020, the number of bullish hedge fund positions on Viad Corp (NYSE:VVI) stock remained unchanged from the previous quarter (see the chart here). Our calculations showed that Viad Corp (NYSE:VVI) isn’t ranked among the 30 most popular stocks among hedge funds.

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Did Hedge Funds Drop The Ball On Extended Stay America Inc (STAY)?

Fri, 07 Aug 2020 13:31:07 GMT

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Extended Stay America Inc (NYSE:STAY) based on that data and determine whether they were really smart about the stock.

Extended Stay America Inc (NYSE:STAY) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that STAY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are many gauges stock traders use to grade stocks. Some of the most useful gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outperform their index-focused peers by a healthy amount (see the details here).

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a look at the latest hedge fund action regarding Extended Stay America Inc (NYSE:STAY).

How are hedge funds trading Extended Stay America Inc (NYSE:STAY)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -49% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in STAY 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.

The largest stake in Extended Stay America Inc (NYSE:STAY) was held by Long Pond Capital, which reported holding $90 million worth of stock at the end of September. It was followed by HG Vora Capital Management with a $73.1 million position. Other investors bullish on the company included Hawk Ridge Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Extended Stay America Inc (NYSE:STAY), around 7.13% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, dishing out 5.63 percent of its 13F equity portfolio to STAY.

Due to the fact that Extended Stay America Inc (NYSE:STAY) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of money managers who sold off their full holdings by the end of the first quarter. At the top of the heap, Amy Minella’s Cardinal Capital cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $49.7 million in stock, and Greg Poole’s Echo Street Capital Management was right behind this move, as the fund cut about $32.9 million worth. These transactions are important to note, as total hedge fund interest fell by 17 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Extended Stay America Inc (NYSE:STAY) but similarly valued. These stocks are First Majestic Silver Corp (NYSE:AG), Cubic Corporation (NYSE:CUB), Avanos Medical (NYSE:AVNS), and Core-Mark Holding Company, Inc. (NASDAQ:CORE). This group of stocks’ market valuations match STAY’s market valuation.

Ticker	No of HFs with positions	Total Value of HF Positions (x1000)	Change in HF Position
AG	13	58265	-3
CUB	17	20747	-2
AVNS	16	83135	8
CORE	19	24155	3
Average	16.25	46576	1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $261 million in STAY’s case. Core-Mark Holding Company, Inc. (NASDAQ:CORE) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 13 bullish hedge fund positions. Extended Stay America Inc (NYSE:STAY) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on STAY as the stock returned 57.2% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Follow Extended Stay America Inc. (NYSE:STAY)Follow Extended Stay America Inc. (NYSE:STAY)

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

Were Hedge Funds Right About Warming Up To Akebia Therapeutics Inc (AKBA)?

Fri, 07 Aug 2020 13:30:24 GMT

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Akebia Therapeutics Inc (NASDAQ:AKBA) based on that data and determine whether they were really smart about the stock.

Akebia Therapeutics Inc (NASDAQ:AKBA) has experienced an increase in hedge fund interest in recent months. Our calculations also showed that AKBA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most investors, hedge funds are perceived as underperforming, old financial tools of the past. While there are more than 8000 funds with their doors open today, We choose to focus on the bigwigs of this club, around 850 funds. These hedge fund managers have their hands on most of all hedge funds’ total asset base, and by paying attention to their top equity investments, Insider Monkey has determined several investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Abrams of Abrams Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s go over the latest hedge fund action surrounding Akebia Therapeutics Inc (NASDAQ:AKBA).

What does smart money think about Akebia Therapeutics Inc (NASDAQ:AKBA)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AKBA over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Baupost Group held the most valuable stake in Akebia Therapeutics Inc (NASDAQ:AKBA), which was worth $132.9 million at the end of the third quarter. On the second spot was Consonance Capital Management which amassed $54 million worth of shares. Nantahala Capital Management, Abrams Capital Management, and Point72 Asset Management 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 Consonance Capital Management allocated the biggest weight to Akebia Therapeutics Inc (NASDAQ:AKBA), around 4.02% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, setting aside 2.7 percent of its 13F equity portfolio to AKBA.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Consonance Capital Management, managed by Mitchell Blutt, created the biggest position in Akebia Therapeutics Inc (NASDAQ:AKBA). Consonance Capital Management had $54 million invested in the company at the end of the quarter. Farallon Capital also made a $9.5 million investment in the stock during the quarter. The other funds with brand new AKBA positions are Bhagwan Jay Rao’s Integral Health Asset Management, David M. Knott’s Dorset Management, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Akebia Therapeutics Inc (NASDAQ:AKBA) but similarly valued. These stocks are JELD-WEN Holding, Inc. (NYSE:JELD), Methode Electronics Inc. (NYSE:MEI), Meritor Inc (NYSE:MTOR), and CSW Industrials, Inc. (NASDAQ:CSWI). This group of stocks’ market caps are closest to AKBA’s market cap.

Ticker	No of HFs with positions	Total Value of HF Positions (x1000)	Change in HF Position
JELD	20	144013	-9
MEI	13	71718	-1
MTOR	17	166288	-12
CSWI	16	32007	0
Average	16.5	103507	-5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $341 million in AKBA’s case. JELD-WEN Holding, Inc. (NYSE:JELD) is the most popular stock in this table. On the other hand Methode Electronics Inc. (NYSE:MEI) is the least popular one with only 13 bullish hedge fund positions. Akebia Therapeutics Inc (NASDAQ:AKBA) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on AKBA as the stock returned 60% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Did Hedge Funds Make The Right Call On Quotient Technology Inc (QUOT)?

Fri, 07 Aug 2020 13:29:36 GMT

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Quotient Technology Inc (NYSE:QUOT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Quotient Technology Inc (NYSE:QUOT) has experienced an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that QUOT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are a multitude of formulas market participants can use to value their holdings. A pair of the most underrated formulas are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the best investment managers can trounce the broader indices by a healthy margin (see the details here).

Bill Miller of Miller Value Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a peek at the fresh hedge fund action regarding Quotient Technology Inc (NYSE:QUOT).

How have hedgies been trading Quotient Technology Inc (NYSE:QUOT)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in QUOT over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Cynthia Paul’s Lynrock Lake has the largest position in Quotient Technology Inc (NYSE:QUOT), worth close to $113.9 million, comprising 11.2% of its total 13F portfolio. Sitting at the No. 2 spot is Miller Value Partners, led by Bill Miller, holding a $47.3 million position; 3% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions encompass Douglas T. Granat’s Trigran Investments, Richard Mashaal’s Rima Senvest Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to Quotient Technology Inc (NYSE:QUOT), around 11.22% of its 13F portfolio. Trigran Investments is also relatively very bullish on the stock, dishing out 7.71 percent of its 13F equity portfolio to QUOT.

Now, some big names were breaking ground themselves. Engineers Gate Manager, managed by Greg Eisner, created the most valuable position in Quotient Technology Inc (NYSE:QUOT). Engineers Gate Manager had $0.4 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.1 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s go over hedge fund activity in other stocks similar to Quotient Technology Inc (NYSE:QUOT). We will take a look at SMART Global Holdings, Inc. (NASDAQ:SGH), Linx S.A. (NYSE:LINX), Range Resources Corp. (NYSE:RRC), and Revlon Inc (NYSE:REV). This group of stocks’ market caps are similar to QUOT’s market cap.

Ticker	No of HFs with positions	Total Value of HF Positions (x1000)	Change in HF Position
SGH	17	264406	-1
LINX	5	11501	1
RRC	23	154075	-6
REV	36	178239	-2
Average	20.25	152055	-2

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $242 million in QUOT’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Linx S.A. (NYSE:LINX) is the least popular one with only 5 bullish hedge fund positions. Quotient Technology Inc (NYSE:QUOT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately QUOT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); QUOT investors were disappointed as the stock returned 19.8% since Q1 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.

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Were Hedge Funds Right About Ditching Enanta Pharmaceuticals Inc (ENTA)?

Fri, 07 Aug 2020 13:28:51 GMT

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Enanta Pharmaceuticals Inc (NASDAQ:ENTA) and determine whether hedge funds skillfully traded this stock.

Is Enanta Pharmaceuticals Inc (NASDAQ:ENTA) a buy right now? Money managers were getting less optimistic. The number of long hedge fund bets retreated by 3 in recent months. Our calculations also showed that ENTA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the latest hedge fund action encompassing Enanta Pharmaceuticals Inc (NASDAQ:ENTA).

How have hedgies been trading Enanta Pharmaceuticals Inc (NASDAQ:ENTA)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in ENTA a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Farallon Capital held the most valuable stake in Enanta Pharmaceuticals Inc (NASDAQ:ENTA), which was worth $90 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $45.3 million worth of shares. Armistice Capital, Marshall Wace LLP, and GLG Partners 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 Armistice Capital allocated the biggest weight to Enanta Pharmaceuticals Inc (NASDAQ:ENTA), around 1.81% of its 13F portfolio. Farallon Capital is also relatively very bullish on the stock, dishing out 0.79 percent of its 13F equity portfolio to ENTA.

Seeing as Enanta Pharmaceuticals Inc (NASDAQ:ENTA) has faced falling interest from the smart money, we can see that there is a sect of hedge funds that elected to cut their full holdings in the first quarter. It’s worth mentioning that Louis Bacon’s Moore Global Investments cut the largest investment of all the hedgies tracked by Insider Monkey, valued at about $4.4 million in stock. Minhua Zhang’s fund, Weld Capital Management, also dumped its stock, about $0.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Enanta Pharmaceuticals Inc (NASDAQ:ENTA). These stocks are John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), SITE Centers Corp. (NYSE:SITC), Grupo Financiero Galicia S.A. (NASDAQ:GGAL), and Calavo Growers, Inc. (NASDAQ:CVGW). This group of stocks’ market values resemble ENTA’s market value.

Ticker	No of HFs with positions	Total Value of HF Positions (x1000)	Change in HF Position
JBSS	14	63220	-3
SITC	21	47296	-1
GGAL	6	12134	-2
CVGW	11	63039	-12
Average	13	46422	-4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $217 million in ENTA’s case. SITE Centers Corp. (NYSE:SITC) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (NASDAQ:GGAL) is the least popular one with only 6 bullish hedge fund positions. Enanta Pharmaceuticals Inc (NASDAQ:ENTA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately ENTA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ENTA were disappointed as the stock returned -2.2% during the same time period 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 many of these stocks already outperformed the market so far this year.

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Did Hedge Funds Make The Right Call On Q2 Holdings Inc (QTWO)?

Fri, 07 Aug 2020 13:28:16 GMT

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Q2 Holdings Inc (NYSE:QTWO) and determine whether the smart money was really smart about this stock.

Is Q2 Holdings Inc (NYSE:QTWO) a safe investment today? Money managers were getting less optimistic. The number of bullish hedge fund bets fell by 2 recently. Our calculations also showed that QTWO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). QTWO was in 18 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with QTWO holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Louis Bacon Moore of Moore Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Q2 Holdings Inc (NYSE:QTWO).

How are hedge funds trading Q2 Holdings Inc (NYSE:QTWO)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the fourth quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in QTWO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Adams Street Partners was the largest shareholder of Q2 Holdings Inc (NYSE:QTWO), with a stake worth $93.2 million reported as of the end of September. Trailing Adams Street Partners was Tremblant Capital, which amassed a stake valued at $64.1 million. Columbus Circle Investors, Cota Capital, and Zevenbergen Capital Investments 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 Adams Street Partners allocated the biggest weight to Q2 Holdings Inc (NYSE:QTWO), around 23.24% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, designating 8.07 percent of its 13F equity portfolio to QTWO.

Seeing as Q2 Holdings Inc (NYSE:QTWO) has experienced declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their full holdings heading into Q4. At the top of the heap, Noam Gottesman’s GLG Partners cut the biggest stake of all the hedgies followed by Insider Monkey, totaling close to $19.1 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $13.9 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Q2 Holdings Inc (NYSE:QTWO). These stocks are UniFirst Corp (NYSE:UNF), Watts Water Technologies Inc (NYSE:WTS), Avista Corp (NYSE:AVA), and Hamilton Lane Incorporated (NASDAQ:HLNE). This group of stocks’ market values are similar to QTWO’s market value.

Ticker	No of HFs with positions	Total Value of HF Positions (x1000)	Change in HF Position
UNF	17	75902	-4
WTS	19	237163	0
AVA	18	145437	3
HLNE	9	68042	-1
Average	15.75	131636	-0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $218 million in QTWO’s case. Watts Water Technologies Inc (NYSE:WTS) is the most popular stock in this table. On the other hand Hamilton Lane Incorporated (NASDAQ:HLNE) is the least popular one with only 9 bullish hedge fund positions. Q2 Holdings Inc (NYSE:QTWO) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on QTWO as the stock returned 59.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

Were Hedge Funds Right About Betting On Esperion Therapeutics (ESPR)?

Fri, 07 Aug 2020 13:27:43 GMT

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Esperion Therapeutics (NASDAQ:ESPR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Esperion Therapeutics (NASDAQ:ESPR) investors should be aware of an increase in hedge fund interest recently. Our calculations also showed that ESPR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to analyze the fresh hedge fund action surrounding Esperion Therapeutics (NASDAQ:ESPR).

What does smart money think about Esperion Therapeutics (NASDAQ:ESPR)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the fourth quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in ESPR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pentwater Capital Management held the most valuable stake in Esperion Therapeutics (NASDAQ:ESPR), which was worth $72.9 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $41.7 million worth of shares. Platinum Asset Management, Rhenman & Partners Asset Management, and Balyasny Asset Management 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 Rhenman & Partners Asset Management allocated the biggest weight to Esperion Therapeutics (NASDAQ:ESPR), around 2.62% of its 13F portfolio. Pentwater Capital Management is also relatively very bullish on the stock, earmarking 1.2 percent of its 13F equity portfolio to ESPR.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in Esperion Therapeutics (NASDAQ:ESPR). Marshall Wace LLP had $41.7 million invested in the company at the end of the quarter. Henrik Rhenman’s Rhenman & Partners Asset Management also initiated a $18.7 million position during the quarter. The other funds with new positions in the stock are Phill Gross and Robert Atchinson’s Adage Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Esperion Therapeutics (NASDAQ:ESPR). We will take a look at Dillard’s, Inc. (NYSE:DDS), Diversified Healthcare Trust (NASDAQ:DHC), KKR Real Estate Finance Trust Inc. (NYSE:KREF), and SunPower Corporation (NASDAQ:SPWR). All of these stocks’ market caps match ESPR’s market cap.

Ticker	No of HFs with positions	Total Value of HF Positions (x1000)	Change in HF Position
DDS	13	125316	-7
DHC	10	12170	1
KREF	7	27093	-2
SPWR	14	26020	-1
Average	11	47650	-2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $191 million in ESPR’s case. SunPower Corporation (NASDAQ:SPWR) is the most popular stock in this table. On the other hand KKR Real Estate Finance Trust Inc. (NYSE:KREF) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Esperion Therapeutics (NASDAQ:ESPR) 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 gained 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on ESPR, though not to the same extent, as the stock returned 29.6% since Q1 and outperformed the market as well.

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

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Did Hedge Funds Drop The Ball On Extended Stay America Inc (STAY)?

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Did Hedge Funds Make The Right Call On Q2 Holdings Inc (QTWO)?

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Were Hedge Funds Right About Betting On Esperion Therapeutics (ESPR)?

What does smart money think about Esperion Therapeutics (NASDAQ:ESPR)?