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.
In this article, we’ll take a closer look at Versum Materials Inc (NYSE:VSM), whose stock went public in September. Overall, 16 funds from our database amassed shares of the company at the end of the third quarter. At the end of this article we will also compare VSM to other stocks including FireEye Inc (NASDAQ:FEYE), Pinnacle Financial Partners (NASDAQ:PNFP), and Compass Minerals International, Inc. (NYSE:CMP) to get a better sense of its popularity.
Follow Versum Materials Inc.
Follow Versum Materials Inc.
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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Now, let’s take a look at the new action encompassing Versum Materials Inc (NYSE:VSM).
How are hedge funds trading Versum Materials Inc (NYSE:VSM)?
As stated earlier, at the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on Versum Materials. So, let’s see which hedge funds were among the top holders of the stock.
According to Insider Monkey’s hedge fund database, Gates Capital Management, led by Jeffrey Gates, holds the largest position in Versum Materials Inc (NYSE:VSM). Gates Capital Management has a $31.9 million position in the stock, comprising 1.1% of its 13F portfolio. On Gates Capital Management’s heels is Guy Shahar’s DSAM Partners, with a $7 million position; 1.5% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism include John Petry’s Sessa Capital, Paul Tudor Jones’ Tudor Investment Corp and Richard S. Meisenberg’s ACK Asset Management. We should note that two of these hedge funds (Gates Capital Management and Sessa Capital) 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.
Let’s see how Versum Materials compares with other stocks with similar market caps.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Versum Materials Inc (NYSE:VSM) but similarly valued. We will take a look at FireEye Inc (NASDAQ:FEYE), Pinnacle Financial Partners (NASDAQ:PNFP), Compass Minerals International, Inc. (NYSE:CMP), and TCF Financial Corporation (NYSE:TCB). This group of stocks’ market valuations are similar to VSM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FEYE | 29 | 284327 | 2 |
| PNFP | 10 | 21950 | 5 |
| CMP | 6 | 74130 | -5 |
| TCB | 16 | 133405 | -2 |
As you can see these stocks had an average of 15 funds with bullish positions and the average amount invested in these stocks was $128 million, compared to $72 million in VSM’s case. FireEye Inc (NASDAQ:FEYE) is the most popular stock in this table. On the other hand Compass Minerals International, Inc. (NYSE:CMP) is the least popular one with only six bullish hedge fund positions. Versum Materials Inc (NYSE:VSM) 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 FireEye Inc (NASDAQ:FEYE) might be a better candidate to consider taking a long position in.
Disclosure: none