Hedge funds run by legendary names like George Soros 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 outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Is Covenant Transportation Group, Inc. (NASDAQ:CVTI) undervalued? The best stock pickers are turning bullish. The number of long hedge fund bets inched up by 3 recently. Our calculations also showed that CVTI isn't among the 30 most popular stocks among hedge funds (see the video below). CVTI was in 14 hedge funds' portfolios at the end of the second quarter of 2019. There were 11 hedge funds in our database with CVTI holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to take a look at the recent hedge fund action encompassing Covenant Transportation Group, Inc. (NASDAQ:CVTI).
How are hedge funds trading Covenant Transportation Group, Inc. (NASDAQ:CVTI)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVTI over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of Covenant Transportation Group, Inc. (NASDAQ:CVTI), with a stake worth $3.4 million reported as of the end of March. Trailing D E Shaw was AQR Capital Management, which amassed a stake valued at $2.8 million. Two Sigma Advisors, Portolan Capital Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Basswood Capital, managed by Matthew Lindenbaum, initiated the biggest position in Covenant Transportation Group, Inc. (NASDAQ:CVTI). Basswood Capital had $1.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $0.6 million position during the quarter. The other funds with brand new CVTI positions are Paul Tudor Jones's Tudor Investment Corp, Roger Ibbotson's Zebra Capital Management, and David Harding's Winton Capital Management.
Let's also examine hedge fund activity in other stocks similar to Covenant Transportation Group, Inc. (NASDAQ:CVTI). We will take a look at Solar Senior Capital Ltd (NASDAQ:SUNS), Allot Ltd. (NASDAQ:ALLT), La Jolla Pharmaceutical Company (NASDAQ:LJPC), and The Meet Group, Inc. (NASDAQ:MEET). This group of stocks' market valuations are closest to CVTI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SUNS,1,767,-1 ALLT,8,54876,-2 LJPC,13,112046,0 MEET,12,12113,-3 Average,8.5,44951,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $18 million in CVTI's case. La Jolla Pharmaceutical Company (NASDAQ:LJPC) is the most popular stock in this table. On the other hand Solar Senior Capital Ltd (NASDAQ:SUNS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Covenant Transportation Group, Inc. (NASDAQ:CVTI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CVTI as the stock returned 11.8% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.