How West Marine, Inc. (WMAR) Stacks Up Against Its Peers

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.

West Marine, Inc. (NASDAQ:WMAR) investors should be aware of an increase in hedge fund sentiment recently. WMAR was in 9 hedge funds’ portfolios at the end of the third quarter of 2016. There were 6 hedge funds in our database with WMAR holdings at the end of the second 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 eHealth, Inc. (NASDAQ:EHTH), MBT Financial Corp. (NASDAQ:MBTF), and Home Bancorp, Inc. (NASDAQ:HBCP) to gather more data points.

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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What have hedge funds been doing with West Marine, Inc. (NASDAQ:WMAR)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a boost of 50% from the second quarter of 2016. On the other hand, there were a total of 5 hedge funds with a bullish position in WMAR at the beginning of this year, which has since risen by 80%. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in West Marine, Inc. (NASDAQ:WMAR), worth close to $13 million. Sitting at the No. 2 spot is Robert Joseph Caruso of Select Equity Group, with a $9.2 million position. Other professional money managers with similar optimism encompass John W. Rogers’ Ariel Investments, Renaissance Technologies, one of the largest hedge funds in the world, and Gilchrist Berg’s Water Street Capital. 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-micro-cap stocks.

With general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Potrero Capital Research, led by Jack Ripsteen, created the most outsized position in West Marine, Inc. (NASDAQ:WMAR). Potrero Capital Research had $0.9 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.6 million investment in the stock during the quarter. The only other fund with a new position in the stock was Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now take a look at hedge fund activity in other stocks similar to West Marine, Inc. (NASDAQ:WMAR). We will take a look at eHealth, Inc. (NASDAQ:EHTH), MBT Financial Corp. (NASDAQ:MBTF), Home Bancorp, Inc. (NASDAQ:HBCP), and Summit Financial Group, Inc. (NASDAQ:SMMF). This group of stocks’ market values are similar to WMAR’s market value.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $29 million in WMAR’s case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Home Bancorp, Inc. (NASDAQ:HBCP) is the least popular one with only 2 bullish hedge fund positions. West Marine, Inc. (NASDAQ:WMAR) 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 EHTH might be a better candidate to consider taking a long position in.

Disclosure: None