Is Universal Insurance Holdings, Inc. (NYSE:UVE) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Universal Insurance Holdings, Inc. (NYSE:UVE) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Kraton Corporation (NYSE:KRA), Patrick Industries, Inc. (NASDAQ:PATK), and Playa Hotels & Resorts N.V. (NASDAQ:PLYA) to gather more data points. Our calculations also showed that UVE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' 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_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the key hedge fund action regarding Universal Insurance Holdings, Inc. (NYSE:UVE).
What does smart money think about Universal Insurance Holdings, Inc. (NYSE:UVE)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in UVE a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness's AQR Capital Management has the largest position in Universal Insurance Holdings, Inc. (NYSE:UVE), worth close to $13.1 million, comprising less than 0.1%% of its total 13F portfolio. On AQR Capital Management's heels is Marshall Wace, managed by Paul Marshall and Ian Wace, which holds a $12.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Alexander Medina Seaver's Stadium Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to Universal Insurance Holdings, Inc. (NYSE:UVE), around 5.59% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to UVE.
Due to the fact that Universal Insurance Holdings, Inc. (NYSE:UVE) has witnessed declining sentiment from hedge fund managers, logic holds that there is a sect of funds who were dropping their full holdings in the third quarter. Interestingly, Peter Algert and Kevin Coldiron's Algert Coldiron Investors sold off the biggest investment of the 750 funds tracked by Insider Monkey, valued at close to $0.7 million in stock, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Universal Insurance Holdings, Inc. (NYSE:UVE) but similarly valued. These stocks are Kraton Corporation (NYSE:KRA), Patrick Industries, Inc. (NASDAQ:PATK), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), and Xperi Corporation (NASDAQ:XPER). This group of stocks' market values resemble UVE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KRA,15,71046,-2 PATK,16,98893,1 PLYA,17,436123,-1 XPER,19,114631,-2 Average,16.75,180173,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $62 million in UVE's case. Xperi Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Kraton Corporation (NYSE:KRA) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Universal Insurance Holdings, Inc. (NYSE:UVE) is even less popular than KRA. Hedge funds dodged a bullet by taking a bearish stance towards UVE. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UVE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UVE investors were disappointed as the stock returned -3% during the fourth quarter (through the end of November) 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.