Is Universal Stainless & Alloy Products (USAP) Going To Burn These Hedge Funds?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge funds have been producing disappointing net returns in recent years, however that was partly due to the poor performance of small-cap stocks in general. Well, small-cap stocks finally turned the corner and have been beating the large-cap stocks by more than 10 percentage points over the last 5 months.This means the relevancy of hedge funds’ public filings became inarguable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Universal Stainless & Alloy Products (NASDAQ:USAP) .

Universal Stainless & Alloy Products (NASDAQ:USAP) was in 6 hedge funds’ portfolios at the end of the third quarter of 2016. USAP shareholders have witnessed a decrease in support from the world’s most successful money managers in recent months. There were 7 hedge funds in our database with USAP positions at the end of the previous 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 Life Technologies Corp. (NASDAQ:LIFE), UniPixel Inc (NASDAQ:UNXL), and Sito Mobile Ltd (NASDAQ:SITO) 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 Universal Stainless & Alloy Products (NASDAQ:USAP)?

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a  fall of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards USAP over the last 5 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Pennant Capital Management, led by Alan Fournier, holds the number one position in Universal Stainless & Alloy Products (NASDAQ:USAP). Pennant Capital Management has a $7.2 million position in the stock. The second largest stake is held by MFP Investors, led by Michael Price, holding a $3.1 million position. Remaining professional money managers that are bullish consist of Jim Simons’ Renaissance Technologies, one of the largest hedge funds in the world,  Alan S. Parsow’s Elkhorn Partners and D. E. Shaw’s D E Shaw. We should note that MFP Investors is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified USAP as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Universal Stainless & Alloy Products (NASDAQ:USAP) but similarly valued. These stocks are Life Technologies Corp. (NASDAQ:LIFE), UniPixel Inc (NASDAQ:UNXL), Sito Mobile Ltd (NASDAQ:SITO), and Galena Biopharma Inc (NASDAQ:GALE). This group of stocks’ market valuations match USAP’s market valuation.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $11 million in USAP’s case. Galena Biopharma Inc (NASDAQ:GALE) is the most popular stock in this table. On the other hand UniPixel Inc (NASDAQ:UNXL) is the least popular one with only 4 bullish hedge fund positions. Universal Stainless & Alloy Products (NASDAQ:USAP) 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 GALE might be a better candidate to consider taking a long position in.

Disclosure: None