Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Everi Holdings Inc (NYSE:EVRI) investors should be aware of a decrease in activity from the world's largest hedge funds recently. EVRI was in 24 hedge funds' portfolios at the end of June. There were 26 hedge funds in our database with EVRI holdings at the end of the previous quarter. Our calculations also showed that EVRI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the latest hedge fund action regarding Everi Holdings Inc (NYSE:EVRI).
Hedge fund activity in Everi Holdings Inc (NYSE:EVRI)
Heading into the third quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in EVRI a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Indaba Capital Management held the most valuable stake in Everi Holdings Inc (NYSE:EVRI), which was worth $83.6 million at the end of the second quarter. On the second spot was Private Capital Management which amassed $42.6 million worth of shares. Moreover, Renaissance Technologies, Millennium Management, and Becker Drapkin Management were also bullish on Everi Holdings Inc (NYSE:EVRI), allocating a large percentage of their portfolios to this stock.
Seeing as Everi Holdings Inc (NYSE:EVRI) has experienced declining sentiment from the smart money, it's easy to see that there lies a certain "tier" of hedge funds who sold off their entire stakes heading into Q3. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, valued at close to $8.8 million in stock. Michael M. Rothenberg's fund, Moab Capital Partners, also dumped its stock, about $3.3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Everi Holdings Inc (NYSE:EVRI) but similarly valued. These stocks are DHT Holdings Inc (NYSE:DHT), Hecla Mining Company (NYSE:HL), Sapiens International Corporation N.V. (NASDAQ:SPNS), and HealthStream, Inc. (NASDAQ:HSTM). This group of stocks' market values match EVRI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DHT,16,110442,0 HL,8,13607,-1 SPNS,8,22769,1 HSTM,13,45722,-1 Average,11.25,48135,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $272 million in EVRI's case. DHT Holdings Inc (NYSE:DHT) is the most popular stock in this table. On the other hand Hecla Mining Company (NYSE:HL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Everi Holdings Inc (NYSE:EVRI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EVRI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EVRI were disappointed as the stock returned -29.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.