Should You Follow the Smart Money Into U.S. Physical Therapy, Inc. (USPH)?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Is U.S. Physical Therapy, Inc. (NYSE:USPH) a bargain? Prominent investors are in a bullish mood. The number of long hedge fund investments moved up by 3 recently. 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 Asanko Gold Inc (NYSEAMEX:AKG), Greenlight Capital Re, Ltd. (NASDAQ:GLRE), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) to gather more data points.

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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What have hedge funds been doing with U.S. Physical Therapy, Inc. (NYSE:USPH)?

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 27% rise from one quarter earlier. The graph below displays the number of hedge funds with bullish position in USPH over the last 5 quarters, which shows a sharp increase in positions in 2016. With hedgies’ sentiment swirling, there exists an “upper tier” of 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, Jim Simons’ Renaissance Technologies has the most valuable position in U.S. Physical Therapy, Inc. (NYSE:USPH), worth close to $36 million. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $20 million position. Remaining peers that are bullish encompass Matthew A. Weatherbie’s Weatherbie Capital, Richard Driehaus’ Driehaus Capital, and Paul Hondros’ AlphaOne Capital Partners. 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.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Citadel Investment Group, led by Ken Griffin, created the most outsized position in U.S. Physical Therapy, Inc. (NYSE:USPH). Citadel Investment Group had $0.5 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new USPH investors: Matthew Tewksbury’s Stevens Capital Management, Joshua Packwood and Schuster Tanger’s Radix Partners, and Joel Greenblatt’s Gotham Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as U.S. Physical Therapy, Inc. (NYSE:USPH) but similarly valued. We will take a look at Asanko Gold Inc (NYSEAMEX:AKG), Greenlight Capital Re, Ltd. (NASDAQ:GLRE), Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), and State Bank Financial Corp (NASDAQ:STBZ). This group of stocks’ market valuations are similar to USPH’s market valuation.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $75 million in USPH’s case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand Asanko Gold Inc (NYSEAMEX:AKG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks U.S. Physical Therapy, Inc. (NYSE:USPH) 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.

Disclosure: None