Should You Avoid VeriFone Systems Inc (PAY)?

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

VeriFone Systems Inc (NYSE:PAY) investors should pay attention to a decrease in hedge fund sentiment of late. There were 24 hedge funds in our database with PAY positions at the end of the previous quarter. At the end of this article we will also compare PAY to other stocks including ABM Industries, Inc. (NYSE:ABM), Entegris Inc (NASDAQ:ENTG), and Platform Specialty Products Corp (NYSE:PAH) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How have hedgies been trading VeriFone Systems Inc (NYSE:PAY)?

Heading into the fourth quarter of 2016, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a fall of 21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PAY over the last 5 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, led by Ken Griffin, holds the most valuable position in VeriFone Systems Inc (NYSE:PAY). Citadel Investment Group has a $24.5 million position in the stock. Coming in second is Cove Street Capital, led by Jeffrey Bronchick, which holds a $24.2 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism comprise Israel Englander’s Millennium Management, Steven Boyd’s Armistice Capital and Alexander Roepers’s Atlantic Investment Management. 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, Paul Singer’s Elliott Management dumped the biggest position of the 700 funds monitored by Insider Monkey, worth an estimated $55.9 million in call options. Daniel S. Och’s fund, OZ Management, also cut its call options, about $9.3 million worth.

Let’s also examine hedge fund activity in other stocks similar to VeriFone Systems Inc (NYSE:PAY). These stocks are ABM Industries, Inc. (NYSE:ABM), Entegris Inc (NASDAQ:ENTG), Platform Specialty Products Corp (NYSE:PAH), and Silicon Laboratories (NASDAQ:SLAB). This group of stocks’ market values resemble PAY’s market value.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $407 million. That figure was $109 million in PAY’s case. Platform Specialty Products Corp (NYSE:PAH) is the most popular stock in this table. On the other hand ABM Industries, Inc. (NYSE:ABM) is the least popular one with only 13 bullish hedge fund positions. VeriFone Systems Inc (NYSE:PAY) 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 PAH might be a better candidate to consider taking a long position in.

Disclosure: None