Should You Follow This Investor Into His Top Small-Cap Picks?

Peter A. Wright started his fund, P.A.W Capital, back in 1990 and in the current round of 13F filings, the fund reported an equity portfolio worth $87.20 million as of the end of September, which was down from $99.15 million a quarter earlier. During the third quarter, the investor initiated five new positions and exited nine former holdings. Wright is still bullish on the tech sector, which amasses around half of P.A.W.’s 13F portfolio. In this article we will talk about P.A.W.’s top five small-cap holdings, which are of particular interest to us at Insider Monkey (more on that below).

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P.A.W. Capital is one of the more than 730 funds that we track as part of our small-cap strategy. Through extensive research, we have determined that analyzing their 13F filings can help a retail investor generate market-beating returns by following the small-caps that these funds are collectively bullish on. Our strategy imitates a portfolio of the 15 most popular small-cap picks among the funds that we track and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by around 53 percentage points (see more details here).

In Web.com Group Inc (NASDAQ:WWWW), P.A.W. reported a stake containing 340,000 shares worth $7.17 million and even though the investor trimmed the position by 10% during the third quarter it still remained at the top of its portfolio. The stock of the provider of Internet services for small businesses lost around 13% in the third quarter, but is still 27% in the green in year-to-date terms. Web.com Group Inc (NASDAQ:WWWW)’s stock may gain even more ground, taking into account that it currently trades at around 9.5-times forward earnings and sports a PEG ratio of 0.71. At the end of June, 21 funds from our database held stakes that collectively amassed over 25% of Web.com Group Inc (NASDAQ:WWWW)’s outstanding stock.

On the other hand, in Allot Communications Ltd (NASDAQ:ALLT), P.A.W boosted its position by 45% between July and September and disclosed holding 960,000 shares valued at $4.71 million as of September 30. Allot Communications Ltd (NASDAQ:ALLT) is engaged in broadband solutions and is another favorite tech pick of Peter Wright. The stock lost 31% in the third quarter and the fact that P.A.W. acquired more shares seems to suggest that Wright believes in the future potential of the company. The stock plunged in May after Barclays downgraded the company, expressing concern with its guidance and transparency. In July, a corporate litigation boutique announced that it would investigate Barclays’ claims on behalf of certain investors. During the second quarter, the number of funds bullish on Allot Communications Ltd (NASDAQ:ALLT) declined to nine from 12, while the aggregate value of their stakes was equal to 16.80% of the company’s outstanding stock.

P.A.W.’s other top three picks are Lifelock Inc (NYSE:LOCK), Lendingtree Inc (NASDAQ:TREE), and Virtusa Corporation (NASDAQ:VRTU), and we will discuss them in more detail on the following page.