How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Unifi, Inc. (NYSE:UFI).
Is UFI a good stock to buy now? Investors who are in the know were reducing their bets on the stock. The number of bullish hedge fund positions fell by 4 lately. Unifi, Inc. (NYSE:UFI) was in 12 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 16. Our calculations also showed that UFI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 16 hedge funds in our database with UFI positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Overdeck of Two Sigma
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to take a peek at the new hedge fund action surrounding Unifi, Inc. (NYSE:UFI).
Do Hedge Funds Think UFI Is A Good Stock To Buy Now?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in UFI over the last 21 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Unifi, Inc. (NYSE:UFI) was held by Impala Asset Management, which reported holding $21.2 million worth of stock at the end of September. It was followed by Royce & Associates with a $5.9 million position. Other investors bullish on the company included Arrowstreet Capital, Two Sigma Advisors, and AQR Capital Management. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Unifi, Inc. (NYSE:UFI), around 2.14% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, dishing out 0.2 percent of its 13F equity portfolio to UFI.
Judging by the fact that Unifi, Inc. (NYSE:UFI) has witnessed declining sentiment from the smart money, logic holds that there is a sect of hedge funds who were dropping their entire stakes in the third quarter. It's worth mentioning that Jeffrey Ubben's ValueAct Capital said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, totaling about $18.3 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund said goodbye to about $1.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Unifi, Inc. (NYSE:UFI). We will take a look at Equity Bancshares, Inc. (NASDAQ:EQBK), Reliant Bancorp, Inc. (NASDAQ:RBNC), Neptune Wellness Solutions Inc (NASDAQ:NEPT), Xunlei Ltd (NASDAQ:XNET), DermTech, Inc. (NASDAQ:DMTK), Larimar Therapeutics, Inc. (NASDAQ:LRMR), and Adicet Bio Inc. (NASDAQ:ACET). This group of stocks' market valuations match UFI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQBK,6,12966,-2 RBNC,3,5493,1 NEPT,5,41890,3 XNET,5,5302,0 DMTK,6,37635,-1 LRMR,17,167530,-1 ACET,7,89750,7 Average,7,51509,1 [/table]
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $38 million in UFI's case. Larimar Therapeutics, Inc. (NASDAQ:LRMR) is the most popular stock in this table. On the other hand Reliant Bancorp, Inc. (NASDAQ:RBNC) is the least popular one with only 3 bullish hedge fund positions. Unifi, Inc. (NYSE:UFI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UFI is 55.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on UFI as the stock returned 32% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
