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.
PetIQ, Inc. (NASDAQ:PETQ) was in 22 hedge funds’ portfolios at the end of September. PETQ investors should be aware of an increase in support from the world’s most elite money managers recently. There were 13 hedge funds in our database with PETQ positions at the end of the previous quarter. Our calculations also showed that PETQ isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to take a glance at the recent hedge fund action regarding PetIQ, Inc. (NASDAQ:PETQ).
What have hedge funds been doing with PetIQ, Inc. (NASDAQ:PETQ)?
Heading into the fourth quarter of 2018, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 69% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in PETQ heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Harvest Capital Strategies was the largest shareholder of PetIQ, Inc. (NASDAQ:PETQ), with a stake worth $21 million reported as of the end of September. Trailing Harvest Capital Strategies was Buckingham Capital Management, which amassed a stake valued at $16.3 million. D E Shaw, Driehaus Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key money managers have jumped into PetIQ, Inc. (NASDAQ:PETQ) headfirst. Renaissance Technologies, managed by Jim Simons, initiated the biggest position in PetIQ, Inc. (NASDAQ:PETQ). Renaissance Technologies had $7.6 million invested in the company at the end of the quarter. Noah Levy and Eugene Dozortsev’s Newtyn Management also initiated a $5.9 million position during the quarter. The following funds were also among the new PETQ investors: Daniel S. Och’s OZ Management, Anand Parekh’s Alyeska Investment Group, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks similar to PetIQ, Inc. (NASDAQ:PETQ). These stocks are Super Micro Computer, Inc. (NASDAQ:SMCI), AllianceBernstein Global High Income Fund (NYSE:AWF), Golar LNG Partners LP (NASDAQ:GMLP), and HealthStream, Inc. (NASDAQ:HSTM). This group of stocks’ market valuations are closest to PETQ’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SMCI | 3 | 58886 | -7 |
| AWF | 1 | 1850 | -2 |
| GMLP | 6 | 36721 | 2 |
| HSTM | 11 | 47381 | -4 |
| Average | 5.25 | 36210 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $106 million in PETQ’s case. HealthStream, Inc. (NASDAQ:HSTM) is the most popular stock in this table. On the other hand AllianceBernstein Global High Income Fund (NYSE:AWF) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks PetIQ, Inc. (NASDAQ:PETQ) 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.
Disclosure: None. This article was originally published at Insider Monkey.