At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Uranium Energy Corp. (NYSE:UEC) ready to rally soon? Investors who are in the know are becoming hopeful. The number of bullish hedge fund positions improved by 3 in recent months. Our calculations also showed that UEC isn't among the 30 most popular stocks among hedge funds. UEC was in 9 hedge funds' portfolios at the end of March. There were 6 hedge funds in our database with UEC holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to view the new hedge fund action encompassing Uranium Energy Corp. (NYSE:UEC).
How have hedgies been trading Uranium Energy Corp. (NYSE:UEC)?
At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in UEC 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 Uranium Energy Corp. (NYSE:UEC) was held by Falcon Edge Capital, which reported holding $1.8 million worth of stock at the end of March. It was followed by Sprott Asset Management with a $1.6 million position. Other investors bullish on the company included Empyrean Capital Partners, CQS Cayman LP, and Prescott Group Capital Management.
As aggregate interest increased, some big names were breaking ground themselves. Empyrean Capital Partners, managed by Michael A. Price and Amos Meron, assembled the largest position in Uranium Energy Corp. (NYSE:UEC). Empyrean Capital Partners had $1.1 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $0.2 million position during the quarter. The only other fund with a brand new UEC position is D. E. Shaw's D E Shaw.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Uranium Energy Corp. (NYSE:UEC) but similarly valued. We will take a look at CECO Environmental Corp. (NASDAQ:CECE), Western New England Bancorp, Inc. (NASDAQ:WNEB), Mersana Therapeutics, Inc. (NASDAQ:MRSN), and Era Group Inc (NYSE:ERA). This group of stocks' market values match UEC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CECE,14,41483,3 WNEB,4,22374,-1 MRSN,16,76424,12 ERA,9,44209,2 Average,10.75,46123,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $8 million in UEC's case. Mersana Therapeutics, Inc. (NASDAQ:MRSN) is the most popular stock in this table. On the other hand Western New England Bancorp, Inc. (NASDAQ:WNEB) is the least popular one with only 4 bullish hedge fund positions. Uranium Energy Corp. (NYSE:UEC) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately UEC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UEC investors were disappointed as the stock returned -7.1% 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.