Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Verra Mobility Corporation (NASDAQ:VRRM).
Is Verra Mobility Corporation (NASDAQ:VRRM) an excellent investment today? Money managers are taking an optimistic view. The number of long hedge fund positions improved by 17 recently. Our calculations also showed that VRRM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jeffrey Ubben of ValueAct Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the fresh hedge fund action encompassing Verra Mobility Corporation (NASDAQ:VRRM).
Hedge fund activity in Verra Mobility Corporation (NASDAQ:VRRM)
At the end of the fourth quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 106% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in VRRM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ValueAct Capital was the largest shareholder of Verra Mobility Corporation (NASDAQ:VRRM), with a stake worth $72.1 million reported as of the end of September. Trailing ValueAct Capital was Cardinal Capital, which amassed a stake valued at $39.7 million. Crescent Park Management, Sunriver Management, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SCW Capital Management allocated the biggest weight to Verra Mobility Corporation (NASDAQ:VRRM), around 10.64% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, dishing out 5.58 percent of its 13F equity portfolio to VRRM.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. ValueAct Capital, managed by Jeffrey Ubben, created the most valuable position in Verra Mobility Corporation (NASDAQ:VRRM). ValueAct Capital had $72.1 million invested in the company at the end of the quarter. Jeffrey Hoffner’s Engle Capital also made a $13.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Verra Mobility Corporation (NASDAQ:VRRM) but similarly valued. We will take a look at Turning Point Therapeutics, Inc. (NASDAQ:TPTX), Trustmark Corp (NASDAQ:TRMK), eHealth, Inc. (NASDAQ:EHTH), and DiamondRock Hospitality Company (NYSE:DRH). All of these stocks’ market caps are closest to VRRM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPTX | 23 | 560633 | 3 |
| TRMK | 16 | 18756 | 1 |
| EHTH | 26 | 458734 | 4 |
| DRH | 17 | 72890 | -1 |
| Average | 20.5 | 277753 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $300 million in VRRM’s case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Trustmark Corp (NASDAQ:TRMK) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Verra Mobility Corporation (NASDAQ:VRRM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately VRRM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VRRM were disappointed as the stock returned -50.9% during the three months of 2020 (through April 6th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
