How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Invacare Corporation (NYSE:IVC).
Is Invacare Corporation (NYSE:IVC) a sound investment right now? Money managers are in a bullish mood. The number of long hedge fund positions moved up by 5 in recent months. Our calculations also showed that IVC isn't among the 30 most popular stocks among hedge funds.
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.
Let's analyze the latest hedge fund action regarding Invacare Corporation (NYSE:IVC).
Hedge fund activity in Invacare Corporation (NYSE:IVC)
At Q1's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the fourth quarter of 2018. On the other hand, there were a total of 21 hedge funds with a bullish position in IVC a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Invacare Corporation (NYSE:IVC), which was worth $17.8 million at the end of the first quarter. On the second spot was Millennium Management which amassed $10.1 million worth of shares. Moreover, D E Shaw, Marshall Wace LLP, and Pura Vida Investments were also bullish on Invacare Corporation (NYSE:IVC), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, some big names have jumped into Invacare Corporation (NYSE:IVC) headfirst. Pura Vida Investments, managed by Efrem Kamen, assembled the largest position in Invacare Corporation (NYSE:IVC). Pura Vida Investments had $6.6 million invested in the company at the end of the quarter. Howard Marks's Oaktree Capital Management also initiated a $3.1 million position during the quarter. The other funds with new positions in the stock are Thomas Ellis and Todd Hammer's North Run Capital, Howard Marks's Oaktree Capital Management, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Invacare Corporation (NYSE:IVC) but similarly valued. These stocks are Verrica Pharmaceuticals Inc. (NASDAQ:VRCA), Dean Foods Company (NYSE:DF), UFP Technologies, Inc. (NASDAQ:UFPT), and Calumet Specialty Products Partners, L.P (NASDAQ:CLMT). All of these stocks' market caps match IVC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRCA,4,56409,-1 DF,17,19399,0 UFPT,9,69220,1 CLMT,4,10140,-1 Average,8.5,38792,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $67 million in IVC's case. Dean Foods Company (NYSE:DF) is the most popular stock in this table. On the other hand Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Invacare Corporation (NYSE:IVC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately IVC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on IVC were disappointed as the stock returned -25.1% during the same 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.