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Did Hedge Funds Drop The Ball On Zagg Inc (ZAGG)?

Nina Todic

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Zagg Inc (NASDAQ:ZAGG).

Is Zagg Inc (NASDAQ:ZAGG) a buy, sell, or hold? The smart money is in a pessimistic mood. The number of bullish hedge fund positions were cut by 5 lately. Our calculations also showed that ZAGG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ZAGG was in 6 hedge funds' portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with ZAGG holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

If you'd ask most market participants, hedge funds are assumed to be underperforming, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading at present, Our experts hone in on the leaders of this club, approximately 750 funds. Most estimates calculate that this group of people administer bulk of all hedge funds' total asset base, and by tracking their highest performing investments, Insider Monkey has uncovered various investment strategies that have historically defeated the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_673968" align="aligncenter" width="473"] David Keidan of Buckingham Capital[/caption]

David Keidan of Buckingham Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's review the recent hedge fund action surrounding Zagg Inc (NASDAQ:ZAGG).

How have hedgies been trading Zagg Inc (NASDAQ:ZAGG)?

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -45% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ZAGG over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in Zagg Inc (NASDAQ:ZAGG) was held by Headlands Capital, which reported holding $9 million worth of stock at the end of September. It was followed by Roumell Asset Management with a $8.4 million position. Other investors bullish on the company included Ancora Advisors, Buckingham Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Roumell Asset Management allocated the biggest weight to Zagg Inc (NASDAQ:ZAGG), around 19.93% of its 13F portfolio. Headlands Capital is also relatively very bullish on the stock, designating 6.32 percent of its 13F equity portfolio to ZAGG.

Since Zagg Inc (NASDAQ:ZAGG) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedge funds who sold off their entire stakes in the third quarter. Intriguingly, Cliff Asness's AQR Capital Management dropped the largest stake of the 750 funds watched by Insider Monkey, worth about $0.3 million in stock. David E. Shaw's fund, D E Shaw, also dumped its stock, about $0.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Zagg Inc (NASDAQ:ZAGG) but similarly valued. These stocks are Clipper Realty Inc. (NYSE:CLPR), RADA Electronic Industries Ltd. (NASDAQ:RADA), Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX), and C&F Financial Corporation (NASDAQ:CFFI). This group of stocks' market values are similar to ZAGG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLPR,7,36891,0 RADA,2,3466,-1 ELOX,3,1869,1 CFFI,3,8008,1 Average,3.75,12559,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $20 million in ZAGG's case. Clipper Realty Inc. (NYSE:CLPR) is the most popular stock in this table. On the other hand RADA Electronic Industries Ltd. (NASDAQ:RADA) is the least popular one with only 2 bullish hedge fund positions. Zagg Inc (NASDAQ:ZAGG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ZAGG as the stock returned 22.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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