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Is USD Partners LP (USDP) A Good Stock To Buy?

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Reymerlyn Martin
·6 min read
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In this article we will take a look at whether hedge funds think USD Partners LP (NYSE:USDP) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

USD Partners LP (NYSE:USDP) shareholders have witnessed an increase in enthusiasm from smart money lately. USD Partners LP (NYSE:USDP) was in 3 hedge funds' portfolios at the end of September. The all time high for this statistics is 4. Our calculations also showed that USDP isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Emanuel J. Friedman
Emanuel J. Friedman

Emanuel Friedman of EJF Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's take a look at the new hedge fund action surrounding USD Partners LP (NYSE:USDP).

How have hedgies been trading USD Partners LP (NYSE:USDP)?

At third quarter's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in USDP over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of USD Partners LP (NYSE:USDP), with a stake worth $0.4 million reported as of the end of September. Trailing Arrowstreet Capital was EJF Capital, which amassed a stake valued at $0.2 million. Citadel Investment Group was 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 EJF Capital allocated the biggest weight to USD Partners LP (NYSE:USDP), around 0.01% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.0006 percent of its 13F equity portfolio to USDP.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, assembled the most valuable position in USD Partners LP (NYSE:USDP). Citadel Investment Group had $0 million invested in the company at the end of the quarter.

Let's now review hedge fund activity in other stocks similar to USD Partners LP (NYSE:USDP). These stocks are Adams Resources & Energy Inc (NYSE:AE), Geospace Technologies Corp (NASDAQ:GEOS), Limbach Holdings, Inc. (NASDAQ:LMB), Gulfport Energy Corporation (NASDAQ:GPOR), RigNet Inc (NASDAQ:RNET), Marlin Business Services Corp. (NASDAQ:MRLN), and X Financial (NYSE:XYF). All of these stocks' market caps match USDP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AE,3,7870,0 GEOS,4,3395,-4 LMB,4,2446,3 GPOR,10,21369,-6 RNET,6,7476,0 MRLN,5,31525,1 XYF,3,318,1 Average,5,10628,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $1 million in USDP's case. Gulfport Energy Corporation (NASDAQ:GPOR) is the most popular stock in this table. On the other hand Adams Resources & Energy Inc (NYSE:AE) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks USD Partners LP (NYSE:USDP) is even less popular than AE. Our overall hedge fund sentiment score for USDP is 28.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on USDP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on USDP as the stock returned 15.1% since Q3 (through November 23rd) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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