There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Universal Display Corporation (NASDAQ:OLED).
Is Universal Display Corporation (NASDAQ:OLED) an exceptional investment now? The smart money is getting less bullish. The number of bullish hedge fund positions dropped by 1 recently. Our calculations also showed that OLED 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 this former hedge fund manager 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. We're going to analyze the latest hedge fund action surrounding Universal Display Corporation (NASDAQ:OLED).
Hedge fund activity in Universal Display Corporation (NASDAQ:OLED)
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the first quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in OLED 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.
More specifically, Polar Capital was the largest shareholder of Universal Display Corporation (NASDAQ:OLED), with a stake worth $60.2 million reported as of the end of March. Trailing Polar Capital was Citadel Investment Group, which amassed a stake valued at $55.6 million. Sandler Capital Management, D E Shaw, and PEAK6 Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Universal Display Corporation (NASDAQ:OLED) has witnessed a decline in interest from the smart money, logic holds that there lies a certain "tier" of fund managers that decided to sell off their full holdings last quarter. It's worth mentioning that Daryl Smith's Kayak Investment Partners said goodbye to the largest position of the "upper crust" of funds watched by Insider Monkey, comprising close to $20.9 million in stock. Glenn Russell Dubin's fund, Highbridge Capital Management, also dumped its stock, about $12.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Universal Display Corporation (NASDAQ:OLED) but similarly valued. We will take a look at Vail Resorts, Inc. (NYSE:MTN), EQT Midstream Partners LP (NYSE:EQM), DocuSign, Inc. (NASDAQ:DOCU), and Aqua America Inc (NYSE:WTR). This group of stocks' market caps resemble OLED's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTN,33,485442,5 EQM,8,57609,0 DOCU,26,327526,-8 WTR,21,726377,6 Average,22,399239,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $92 million in OLED's case. Vail Resorts, Inc. (NYSE:MTN) is the most popular stock in this table. On the other hand EQT Midstream Partners LP (NYSE:EQM) is the least popular one with only 8 bullish hedge fund positions. Universal Display Corporation (NASDAQ:OLED) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OLED wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OLED investors were disappointed as the stock returned -10.7% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.