While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Ultralife Corp. (NASDAQ:ULBI).
Is Ultralife Corp. (NASDAQ:ULBI) a buy, sell, or hold? Hedge funds are turning less bullish. The number of long hedge fund positions shrunk by 1 in recent months. Our calculations also showed that ULBI isn't among the 30 most popular stocks among hedge funds. ULBI was in 3 hedge funds' portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with ULBI holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the latest hedge fund action encompassing Ultralife Corp. (NASDAQ:ULBI).
What have hedge funds been doing with Ultralife Corp. (NASDAQ:ULBI)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in ULBI 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in Ultralife Corp. (NASDAQ:ULBI), worth close to $2.7 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Frederick DiSanto of Ancora Advisors, with a $0.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position Ancora Advisors allocated the biggest weight to Ultralife Corp. (NASDAQ:ULBI), around 0.02% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0023 percent of its 13F equity portfolio to ULBI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ULBI as a viable investment and initiated a position in the stock.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Ultralife Corp. (NASDAQ:ULBI) but similarly valued. We will take a look at Universal Stainless & Alloy Products (NASDAQ:USAP), Armstrong Flooring, Inc. (NYSE:AFI), First Western Financial, Inc. (NASDAQ:MYFW), and AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO). This group of stocks' market caps match ULBI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position USAP,6,26056,-2 AFI,13,39918,1 MYFW,3,9054,0 AVEO,5,2750,-2 Average,6.75,19445,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $4 million in ULBI's case. Armstrong Flooring, Inc. (NYSE:AFI) is the most popular stock in this table. On the other hand First Western Financial, Inc. (NASDAQ:MYFW) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Ultralife Corp. (NASDAQ:ULBI) is even less popular than MYFW. Hedge funds dodged a bullet by taking a bearish stance towards ULBI. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately ULBI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ULBI investors were disappointed as the stock returned -3.8% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.