At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Rocket Fuel Inc (NASDAQ:FUEL) undervalued? The best stock pickers are indeed in a bearish mood. The number of long hedge fund bets that are revealed through the 13F filings went down by 2 in recent months. FUEL was in 8 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with FUEL holdings at the end of the previous quarter. 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 Willbros Group Inc (NYSE:WG), Stonegate Mortageg Corp (NYSE:SGM), and Safe Bulkers, Inc. (NYSE:SB) to gather more data points.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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How are hedge funds trading Rocket Fuel Inc (NASDAQ:FUEL)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 20% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in FUEL heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the biggest position in Rocket Fuel Inc (NASDAQ:FUEL), worth close to $7 million. The second largest stake is held by Prescott Group Capital Management, led by Phil Frohlich, holding a $1.1 million position. Some other peers with similar optimism contain Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Joseph Mathias’ Concourse Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Since Rocket Fuel Inc (NASDAQ:FUEL) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that decided to sell off their full holdings last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group sold off the biggest stake of all the hedgies watched by Insider Monkey, comprising an estimated $0.1 million in call options, and Cliff Asness’ AQR Capital Management was right behind this move, as the fund dropped about $0.1 million worth of shares.
Let’s now take a look at hedge fund activity in other stocks similar to Rocket Fuel Inc (NASDAQ:FUEL). We will take a look at Willbros Group Inc (NYSE:WG), Stonegate Mortageg Corp (NYSE:SGM), Safe Bulkers, Inc. (NYSE:SB), and Prudential Bancorp, Inc. of PA (NASDAQ:PBIP). All of these stocks’ market caps are closest to FUEL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WG | 7 | 10858 | -3 |
| SGM | 6 | 25161 | -3 |
| SB | 5 | 6607 | -1 |
| PBIP | 4 | 23282 | 0 |
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 $16 million. That figure was $10 million in FUEL’s case. Willbros Group Inc (NYSE:WG) is the most popular stock in this table. On the other hand Prudential Bancorp, Inc. of PA (NASDAQ:PBIP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Rocket Fuel Inc (NASDAQ:FUEL) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
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