Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Zagg Inc (NASDAQ:ZAGG) from the perspective of those successful funds.
Is Zagg Inc (NASDAQ:ZAGG) an outstanding investment now? The smart money is really in a pessimistic mood. The number of long hedge fund investments slashed by 3 recently. ZAGG was in 8 hedge funds’ portfolios at the end of the third quarter of 2016. There were 11 hedge funds in our database with ZAGG holdings 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 Abraxas Petroleum Corp. (NASDAQ:AXAS), Neff Corp (NYSE:NEFF), and Park City Group, Inc. (NASDAQ:PCYG) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Keeping this in mind, we’re going to analyze the latest action encompassing Zagg Inc (NASDAQ:ZAGG).
How are hedge funds trading Zagg Inc (NASDAQ:ZAGG)?
Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a plunge of 27% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in ZAGG heading into this year. So, let’s examine 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, Cliff Asness’s AQR Capital Management has the number one position in Zagg Inc (NASDAQ:ZAGG), worth close to $6.4 million, corresponding to less than 0.1% of its total 13F portfolio. The second most bullish fund manager is D E Shaw, one of the biggest hedge funds in the world, with a $1.8 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish encompass Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Chuck Royce’s Royce & Associates and Ken Griffin’s Citadel Investment Group. 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-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually dumped their positions entirely. At the top of the heap, David Brown’s Hawk Ridge Management dumped the largest investment of the 700 funds tracked by Insider Monkey, comprising close to $2 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $0.6 million worth of Zagg Inc (NASDAQ:ZAGG) shares.
Let’s also examine hedge fund activity in other stocks similar to Zagg Inc (NASDAQ:ZAGG). We will take a look at Abraxas Petroleum Corp. (NASDAQ:AXAS), Neff Corp (NYSE:NEFF), Park City Group, Inc. (NASDAQ:PCYG), and Concert Pharmaceuticals Inc (NASDAQ:CNCE). All of these stocks’ market caps are closest to ZAGG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXAS | 7 | 17789 | 2 |
| NEFF | 5 | 7950 | 5 |
| PCYG | 5 | 1754 | 5 |
| CNCE | 16 | 46601 | 3 |
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $11 million in ZAGG’s case. Concert Pharmaceuticals Inc (NASDAQ:CNCE) is the most popular stock in this table. On the other hand Neff Corp (NYSE:NEFF) is the least popular one with only 5 bullish hedge fund positions. Zagg Inc (NASDAQ:ZAGG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CNCE might be a better candidate to consider taking a long position in.
Disclosure: None
