In this article, we will take a look at the 10 best under-the-radar stocks to buy according to hedge funds. To see more such companies, go to 5 Best Under-The-Radar Stocks To Buy According To Hedge Funds.
The market bloodbath of 2022 spared no one and the $4 trillion hedge fund industry was no exception
However, a Bloomberg report in December highlighted that some segments of the hedge funds industry did manage to outperform the market. The report said that they were able to do so due to their resources, massive funds and “an army of traders.”
The report said that major hedge funds like Citadel and Millennium Management produced “double-digit gains” while notable hedge funds that focus on macro-economic trends were also among the winners. These funds include Haidar Capital and Rokos Capital Management.
Time and again the hedge fund industry has proven that the institutional power often trumps individual effort. Major hedge funds have a huge edge in the market over small investors mainly due to their sheer size, reach and cash. For example, in 2022, D.E. Shaw & Co.’s two biggest hedge funds posted returns of at least 20%. The primary reason behind their profits, according to Bloomberg, was market volatility, the very reason that crushed average investors. DE Shaw’s flagship Composite fund gained about 24% in the year, according to Bloomberg. This fund invests across several asset classes and geographies. Similarly, DE Shaw’s Oculus fund, which focuses on macro investments, jumped 20% in 2022.
Many hedge funds were winners in 2022, and it seems they are ready to reap more benefits in 2023. Bloomberg quoted Mario Unali, a senior money manager at Kairos Partners, who thinks:
“Next year is almost the perfect setting for a hedge fund strategy. You get higher rates, you get more volatility, you get fundamentals that are back in business and it’s not going to be all about passive investments.”
That’s why in this article we are going to focus on the under-the-radar bets of elite hedge funds that you should consider in 2023.
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Methodology
We scanned Insider Monkey’s database of 920 hedge funds and picked top 10 stocks that are not very popular among average investors but present attractive investment opportunities. These under-the-radar companies are operating in a diverse range of industries and can grow big for the reasons we mention in their respective paragraphs. The list is ranked according to the number of hedge funds having stakes in these companies as of the end of the September quarter.
Best Under-The-Radar Stocks To Buy According To Hedge Funds
10. PubMatic, Inc. (NASDAQ:PUBM)
Number of Hedge Fund Holders: 12
PubMatic, Inc. (NASDAQ:PUBM) is an under-the-radar stock that is currently down amid macroeconomic headwinds that have crushed the advertising industry. PubMatic, Inc. (NASDAQ:PUBM)’s services allow digital content publishers and ad buyers to make the most out of the internet advertising ecosystem. However, amid recession fears and major policy changes by tech companies, adtech stocks are down. But PubMatic, Inc. (NASDAQ:PUBM) bulls say that the stock can rebound strongly when recession fears will recede and ad buyers will start to increase spending.
PubMatic, Inc. (NASDAQ:PUBM) has shown impressive growth over the past few years. The company delivers around 400 billion daily ads.
Quant investor Jim Simons’ Renaissance Technologies is one of the biggest stakeholders of the adtech company out of the 920 hedge funds tracked by Insider Monkey. The hedge fund has a $12.5 million stake in the company as of the end of the September quarter. Another notable investor in PubMatic, Inc. (NASDAQ:PUBM) is Schonfeld Strategic Advisors, which has a $4.3 million stake in the company. Overall, 12 hedge funds have stakes in the company.
9. Lithium Americas Corp. (NYSE:LAC)
Number of Hedge Fund Holders: 14
Lithium Americas Corp. (NYSE:LAC) is a Canadian company that is involved in the mining of lithium-bearing spodumene and pegmatite ores in the United States and Argentina. Lithium Americas Corp. (NYSE:LAC) is operating in the lucrative lithium market that is expected to enjoy huge growth amid the EV battery boom. In November, Lithium Americas Corp. (NYSE:LAC) said it will separate its North American and Argentine business units into two independent public companies.
As of the end of the third quarter, 14 hedge funds tracked by Insider Monkey reported having stakes in Lithium Americas Corp. (NYSE:LAC), compared to 9 funds in the previous quarter.
8. SEMrush Holdings, Inc. (NYSE:SEMR)
Number of Hedge Fund Holders: 16
SEMrush Holdings, Inc. (NYSE:SEMR) is a Boston, Massachusetts-based company that is known for its SEO platform that allows internet publishers and digital marketers to conduct keyword research, SEO analysis of websites, among several other tasks. Semrush stock has lost nearly 55% over the past year. For the third quarter, the company posted GAAP EPS of -$0.06 beating estimates by $0.03. Revenue in the quarter jumped 33.5% on a year-over-year basis to reach $65.8 million, beating the estimates by $1.83 million. The company said that its ARR as of September 2022 was $267 million, up 33% YoY. Semrush also reported that it has reached 94,000 paying customers as of the end of the September quarter, which shows a 17% growth from the year-ago period.
Like other internet publishing and growth stocks, Semrush is also facing the heat of recession fears. SEMrush Holdings, Inc. (NYSE:SEMR) could rebound sharply once these fears recede
A total of 16 hedge funds tracked by Insider Monkey had stakes in SEMrush Holdings, Inc. (NYSE:SEMR) as of the end of the third quarter of 2022.
7. YETI Holdings, Inc. (NYSE:YETI)
Number of Hedge Fund Holders: 23
YETI Holdings, Inc. (NYSE:YETI) is a Texas-based company that makes outdoor equipment like water bottles, backpacks, outdoor apparel and camping equipment. While YETI Holdings, Inc. (NYSE:YETI) has lost about 45% in the last 12 months, analysts think that YETI Holdings, Inc. (NYSE:YETI) could rebound sharply in the coming months.
In November, Canaccord Genuity started covering the stock with a Buy rating. The firm’s analyst Brian McNamara said that the company has built a global lifestyle brand that has a “staying power.” The analyst, who set a $58 price target on the stock, said that latest fears about mean reversion and temporary margin headwinds have overshadowed its solid fundamentals.
The stock “should be as bear-proof as its coolers,” the analyst added.
As of the end of the third quarter, 23 hedge funds tracked by Insider Monkey reported having stakes in YETI Holdings, Inc. (NYSE:YETI), compared to 18 hedge funds in the previous quarter. Ken Griffin’s Citadel Investment Group has an $11.6 million stake in the company.
6. Upwork Inc. (NASDAQ:UPWK)
Number of Hedge Fund Holders: 25
Despite the widespread fame of remote work, work-from-home jobs, online learning and employment opportunities, the world’s biggest online marketplace for freelancers, Upwork Inc. (NASDAQ:UPWK), remains an under-the-radar stock. According to Upwork’s own estimates, close to 59 million Americans freelance amid the tough jobs market and changing working dynamics.
While Upwork Inc. (NASDAQ:UPWK)’s growth has cooled amid the current macroeconomic backdrop and weak execution, the rise of remote work trends is expected to drive growth in the future.
In the third quarter, Upwork Inc. (NASDAQ:UPWK) posted a non-GAAP EPS of -$0.03 beating the Street estimates by $0.05. Revenue in the quarter jumped about 24% to reach $158.64 million, beating estimates by $1.3 million. Upwork said that it ended the third quarter with 818,000 active clients.
Of the 920 hedge funds tracked by Insider Monkey, 25 reported having stakes in Upwork Inc. (NASDAQ:UPWK) as of the end of the third quarter. The total value of these stakes was about $263 million. The biggest stakeholder of the company is David Brown’s Hawk Ridge Management which owns a $57 million stake.
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Disclosure: None. 10 Best Under-The-Radar Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
