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In this article you are going to find out whether hedge funds think Universal Stainless & Alloy Products (NASDAQ:USAP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Universal Stainless & Alloy Products (NASDAQ:USAP) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds' portfolios at the end of the first quarter of 2020. 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 Sundial Growers Inc. (NASDAQ:SNDL), CTI Biopharma Corp. (NASDAQ:CTIC), and MTBC, Inc. (NASDAQ:MTBC) to gather more data points. Our calculations also showed that USAP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Fred DiSanto of Ancora Advisors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a peek at the key hedge fund action regarding Universal Stainless & Alloy Products (NASDAQ:USAP).
How have hedgies been trading Universal Stainless & Alloy Products (NASDAQ:USAP)?
At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in USAP a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Universal Stainless & Alloy Products (NASDAQ:USAP), with a stake worth $5.7 million reported as of the end of September. Trailing Royce & Associates was Minerva Advisors, which amassed a stake valued at $3.4 million. Forest Hill Capital, Fondren Management, and Ancora Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to Universal Stainless & Alloy Products (NASDAQ:USAP), around 2.64% of its 13F portfolio. Fondren Management is also relatively very bullish on the stock, setting aside 1.57 percent of its 13F equity portfolio to USAP.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the first quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Universal Stainless & Alloy Products (NASDAQ:USAP) but similarly valued. These stocks are Sundial Growers Inc. (NASDAQ:SNDL), CTI Biopharma Corp. (NASDAQ:CTIC), MTBC, Inc. (NASDAQ:MTBC), and RR Donnelley & Sons Company (NASDAQ:RRD). This group of stocks' market values resemble USAP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNDL,4,1465,0 CTIC,8,23129,3 MTBC,2,3526,0 RRD,10,10078,-1 Average,6,9550,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $13 million in USAP's case. RR Donnelley & Sons Company (NASDAQ:RRD) is the most popular stock in this table. On the other hand MTBC, Inc. (NASDAQ:MTBC) is the least popular one with only 2 bullish hedge fund positions. Universal Stainless & Alloy Products (NASDAQ:USAP) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately USAP wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); USAP investors were disappointed as the stock returned 13.4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.