Is Universal Forest Products, Inc. (UFPI) A Good Stock To Buy?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 5.2% over the 12-month period ending October 30, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey (as of September 2014) generated a return of 9.5% over the same time span, with 63% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Universal Forest Products, Inc. (NASDAQ:UFPI).

Universal Forest Products, Inc. (NASDAQ:UFPI) has seen an increase in activity from the world’s largest hedge funds lately. UFPI was in 19 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with UFPI holdings at the end of the previous quarter. These are positive signals. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives though. 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 PennyMac Mortgage Investment Trust (NYSE:PMT), Flagstar Bancorp Inc (NYSE:FBC), and NIC Inc. (NASDAQ:EGOV) to gather more data points.

What have hedge funds been doing with Universal Forest Products, Inc. (NASDAQ:UFPI)?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the second quarter. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the biggest position in Universal Forest Products, Inc. (NASDAQ:UFPI), worth close to $12.6 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Covalent Capital Partners, managed by Robert Hockett, which holds a $11.7 million position; 2.5% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions contain Ken Fisher’s Fisher Asset Management, David Dreman’s Dreman Value Management and Ken Grossman and Glen Schneider’s SG Capital Management.

As one would reasonably expect, some big names were leading the bulls’ herd. Covalent Capital Partners established the largest position in Universal Forest Products, Inc. (NASDAQ:UFPI). Covalent Capital Partners had $11.7 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $5.3 million position during the quarter. The other funds with brand new UFPI positions are Glenn Russell Dubin’s Highbridge Capital Management, and quant shops D E Shaw and AQR Capital Management.

Let’s check out hedge fund activity in other stocks similar to Universal Forest Products, Inc. (NASDAQ:UFPI). We will take a look at PennyMac Mortgage Investment Trust (NYSE:PMT), Flagstar Bancorp Inc (NYSE:FBC), NIC Inc. (NASDAQ:EGOV), and Smart & Final Stores Inc (NYSE:SFS). This group of stocks’ market caps are closest to UFPI’s market cap.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $76 million in UFPI’s case. PennyMac Mortgage Investment Trust (NYSE:PMT) is the most popular stock in this table. On the other hand Smart & Final Stores Inc (NYSE:SFS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Universal Forest Products, Inc. (NASDAQ:UFPI) 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.