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Were Hedge Funds Right About Flocking Into EPAM Systems Inc (EPAM) ?

Nina Todic

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Is EPAM Systems Inc (NYSE:EPAM) a bargain? Money managers are taking an optimistic view. The number of bullish hedge fund bets improved by 1 in recent months. Our calculations also showed that EPAM isn't among the 30 most popular stocks among hedge funds.

According to most stock holders, hedge funds are seen as unimportant, outdated investment tools of the past. While there are more than 8000 funds with their doors open at present, Our experts choose to focus on the aristocrats of this club, approximately 750 funds. Most estimates calculate that this group of people direct bulk of all hedge funds' total capital, and by following their unrivaled investments, Insider Monkey has spotted a few investment strategies that have historically outpaced the market. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by nearly 5 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Richard Driehaus

Let's analyze the latest hedge fund action encompassing EPAM Systems Inc (NYSE:EPAM).

How have hedgies been trading EPAM Systems Inc (NYSE:EPAM)?

At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2018. By comparison, 20 hedge funds held shares or bullish call options in EPAM a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

EPAM

More specifically, AQR Capital Management was the largest shareholder of EPAM Systems Inc (NYSE:EPAM), with a stake worth $26.2 million reported as of the end of September. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $16.7 million. Driehaus Capital, Adage Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, key money managers have been driving this bullishness. Venator Capital Management, managed by Brandon Osten, established the most valuable position in EPAM Systems Inc (NYSE:EPAM). Venator Capital Management had $4 million invested in the company at the end of the quarter. Hugh Sloane's Sloane Robinson Investment Management also initiated a $2.8 million position during the quarter. The other funds with brand new EPAM positions are Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, John Overdeck and David Siegel's Two Sigma Advisors, and Hoon Kim's Quantinno Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as EPAM Systems Inc (NYSE:EPAM) but similarly valued. These stocks are Dr. Reddy's Laboratories Limited (NYSE:RDY), Zendesk Inc (NYSE:ZEN), Integrated Device Technology, Inc. (NASDAQ:IDTI), and LATAM Airlines Group S.A. (NYSE:LTM). All of these stocks' market caps are similar to EPAM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDY,10,84442,1 ZEN,53,1794269,9 IDTI,35,1125743,0 LTM,8,22988,3 Average,26.5,756861,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $757 million. That figure was $81 million in EPAM's case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand LATAM Airlines Group S.A. (NYSE:LTM) is the least popular one with only 8 bullish hedge fund positions. EPAM Systems Inc (NYSE:EPAM) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on EPAM as the stock returned 45.9% and outperformed the market as well.

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

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