Is UFS Stock A Buy or Sell?

In this article we will check out the progression of hedge fund sentiment towards Domtar Corporation (NYSE:UFS) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is UFS stock a buy? Domtar Corporation (NYSE:UFS) investors should be aware of an increase in hedge fund interest lately. Domtar Corporation (NYSE:UFS) was in 25 hedge funds’ portfolios at the end of December. The all time high for this statistic is 27. Our calculations also showed that UFS isn’t among the 30 most popular stocks among hedge funds (click for Q4 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. Hedge funds have more than $3 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Clint Carlson of Carlson Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to view the fresh hedge fund action encompassing Domtar Corporation (NYSE:UFS).

Do Hedge Funds Think UFS Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in UFS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Carlson Capital, managed by Clint Carlson, holds the number one position in Domtar Corporation (NYSE:UFS). Carlson Capital has a $51.3 million position in the stock, comprising 1.8% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $38.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that are bullish comprise Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Domtar Corporation (NYSE:UFS), around 3.01% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, setting aside 2.57 percent of its 13F equity portfolio to UFS.

As industrywide interest jumped, some big names were leading the bulls’ herd. Sandbar Asset Management, managed by Michael Cowley, created the biggest position in Domtar Corporation (NYSE:UFS). Sandbar Asset Management had $13.6 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also initiated a $7.5 million position during the quarter. The other funds with brand new UFS positions are Allan Teh’s Kamunting Street Capital, Michael Gelband’s ExodusPoint Capital, and Brandon Haley’s Holocene Advisors.

Let’s go over hedge fund activity in other stocks similar to Domtar Corporation (NYSE:UFS). We will take a look at Two Harbors Investment Corp (NYSE:TWO), American Assets Trust, Inc (NYSE:AAT), Horace Mann Educators Corporation (NYSE:HMN), CryoPort, Inc. (NASDAQ:CYRX), IAMGOLD Corporation (NYSE:IAG), PennyMac Mortgage Investment Trust (NYSE:PMT), and Capitol Federal Financial, Inc. (NASDAQ:CFFN). This group of stocks’ market valuations resemble UFS’s market valuation.

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As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $253 million in UFS’s case. CryoPort, Inc. (NASDAQ:CYRX) is the most popular stock in this table. On the other hand Capitol Federal Financial, Inc. (NASDAQ:CFFN) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Domtar Corporation (NYSE:UFS) is more popular among hedge funds. Our overall hedge fund sentiment score for UFS is 83.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on UFS as the stock returned 23.4% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.