Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
StealthGas Inc. (NASDAQ:GASS) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of the third quarter of 2016. 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 Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH), Calamos Asset Management, Inc (NASDAQ:CLMS), and Castle Brands Inc (NYSEAMEX:ROX) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Hedge fund activity in StealthGas Inc. (NASDAQ:GASS)
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in GASS at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management has the number one position in StealthGas Inc. (NASDAQ:GASS), worth close to $12.9 million, corresponding to 1% of its total 13F portfolio. Coming in second is Glendon Capital Management, led by Matthew Barrett, holding a $8.5 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish contain Jonathan Kolatch’s Redwood Capital Management, Chuck Royce’s Royce & Associates and Carl Goldsmith and Scott Klein’s Beach Point 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.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s go over hedge fund activity in other stocks similar to StealthGas Inc. (NASDAQ:GASS). We will take a look at Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH), Calamos Asset Management, Inc (NASDAQ:CLMS), Castle Brands Inc (NYSEAMEX:ROX), and Westfield Financial, Inc. (NASDAQ:WFD). This group of stocks’ market values match GASS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TTPH | 11 | 12294 | 1 |
| CLMS | 6 | 16639 | -1 |
| ROX | 6 | 1201 | 1 |
| WFD | 4 | 24395 | 0 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $50 million in GASS’s case. Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH) is the most popular stock in this table. On the other hand Westfield Financial, Inc. (NASDAQ:WFD) is the least popular one with only 4 bullish hedge fund positions. StealthGas Inc. (NASDAQ:GASS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TTPH might be a better candidate to consider taking a long position in.
Disclosure: None
