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Is Usa Compression Partners LP (USAC) Going to Burn These Hedge Funds?

Debasis Saha

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Usa Compression Partners LP (NYSE:USAC).

Usa Compression Partners LP (NYSE:USAC) was in 4 hedge funds' portfolios at the end of the third quarter of 2019. USAC investors should pay attention to an increase in support from the world's most elite money managers of late. There were 3 hedge funds in our database with USAC holdings at the end of the previous quarter. Our calculations also showed that USAC 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.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

If you'd ask most traders, hedge funds are seen as worthless, outdated investment tools of the past. While there are over 8000 funds trading today, Our researchers choose to focus on the crème de la crème of this group, around 750 funds. These money managers have their hands on most of the smart money's total asset base, and by observing their inimitable investments, Insider Monkey has brought to light a few investment strategies that have historically defeated the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/caption]

Ken Griffin
Ken Griffin

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's view the key hedge fund action encompassing Usa Compression Partners LP (NYSE:USAC).

What does smart money think about Usa Compression Partners LP (NYSE:USAC)?

At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards USAC over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is USAC A Good Stock To Buy?
Is USAC A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mark Coe's Intrinsic Edge Capital has the largest position in Usa Compression Partners LP (NYSE:USAC), worth close to $3.9 million, amounting to 0.4% of its total 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $1.6 million call position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers that hold long positions comprise Russell Lucas's Lucas Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Matthew Hulsizer's PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Lucas Capital Management allocated the biggest weight to Usa Compression Partners LP (NYSE:USAC), around 0.68% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, designating 0.44 percent of its 13F equity portfolio to USAC.

There weren't any hedge funds initiating brand new positions in the stock during the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Usa Compression Partners LP (NYSE:USAC) but similarly valued. We will take a look at Veoneer, Inc. (NASDAQ:VNE), U.S. Physical Therapy, Inc. (NYSE:USPH), Calavo Growers, Inc. (NASDAQ:CVGW), and SailPoint Technologies Holdings, Inc. (NYSE:SAIL). All of these stocks' market caps match USAC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNE,10,149807,-2 USPH,12,64630,1 CVGW,17,108346,2 SAIL,23,226214,1 Average,15.5,137249,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $5 million in USAC's case. SailPoint Technologies Holdings, Inc. (NYSE:SAIL) is the most popular stock in this table. On the other hand Veoneer, Inc. (NASDAQ:VNE) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Usa Compression Partners LP (NYSE:USAC) is even less popular than VNE. Hedge funds dodged a bullet by taking a bearish stance towards USAC. 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 USAC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); USAC investors were disappointed as the stock returned -1.9% 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.

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