Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
U.S. Well Services, Inc. (NASDAQ:USWS) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. USWS was in 13 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with USWS positions at the end of the previous quarter. Our calculations also showed that USWS isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a look at the new hedge fund action encompassing U.S. Well Services, Inc. (NASDAQ:USWS).
How are hedge funds trading U.S. Well Services, Inc. (NASDAQ:USWS)?
Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in USWS over the last 15 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Encompass Capital Advisors held the most valuable stake in U.S. Well Services, Inc. (NASDAQ:USWS), which was worth $14.6 million at the end of the first quarter. On the second spot was Alyeska Investment Group which amassed $10 million worth of shares. Moreover, Scoggin, Angelo Gordon & Co, and Millennium Management were also bullish on U.S. Well Services, Inc. (NASDAQ:USWS), allocating a large percentage of their portfolios to this stock.
Judging by the fact that U.S. Well Services, Inc. (NASDAQ:USWS) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedgies that elected to cut their positions entirely heading into Q3. Interestingly, Ari Zweiman’s 683 Capital Partners dumped the largest position of the 700 funds watched by Insider Monkey, worth close to $0.5 million in stock. Paul Glazer’s fund, Glazer Capital, also sold off its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as U.S. Well Services, Inc. (NASDAQ:USWS) but similarly valued. We will take a look at First Financial Corp (NASDAQ:THFF), Natural Resource Partners LP (NYSE:NRP), Universal Electronics Inc (NASDAQ:UEIC), and Attunity Ltd (NASDAQ:ATTU). This group of stocks’ market valuations are similar to USWS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| THFF | 7 | 12875 | 2 |
| NRP | 5 | 18109 | 1 |
| UEIC | 12 | 25643 | 6 |
| ATTU | 18 | 158528 | 1 |
| Average | 10.5 | 53789 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $42 million in USWS’s case. Attunity Ltd (NASDAQ:ATTU) is the most popular stock in this table. On the other hand Natural Resource Partners LP (NYSE:NRP) is the least popular one with only 5 bullish hedge fund positions. U.S. Well Services, Inc. (NASDAQ:USWS) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately USWS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on USWS were disappointed as the stock returned -26.3% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
