Callaway Golf, WMIH Rank Among The 5 Most Popular Micro-Cap Stocks Among Hedge Funds

Seeing as the latest 13F filing deadline has passed and hedge funds have the brightest workers and the most resources to find alpha opportunities of anyone, Insider Monkey has put together a list of some of the smart money’s favorite micro-cap stocks as of June 30. Note that Insider Monkey’s definition of micro-cap is a company with a market cap of between $50.01 million and $1 billion. Other sources often categorize micro-cap stocks as being between $50.01 million and $300 million.

Without further ado, let’s examine the most popular micro-cap stocks among the 749 hedge funds in our database that filed 13F’s during the latest reporting period. They are California Resources Corp (NYSE:CRC), AK Steel Holding Corporation (NYSE:AKS), Callaway Golf Co (NYSE:ELY), Oclaro, Inc. (NASDAQ:OCLR), and WMIH Corp. (NASDAQ:WMIH).

Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 700 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).

#5 WMIH Corp. (NASDAQ:WMIH)

– Number of Hedge Fund Holders (as of June 30): 29
– Total Value of Hedge Fund Holdings (as of June 30): $131.18 million
– Hedge Fund Holdings as Percent of Float (as of June 30): 28.60%

Although a net total of four funds sold WMIH Corp. (NASDAQ:WMIH) in the second quarter, 29 funds in our system still held 28.6% of the company’s float at the end of June, making WMIH one of the most widely held micro-cap stocks on our list. While the company hasn’t done much in terms of acquisitions to take advantage of its tax loss credits, WMIH Corp did join the Russell 2000 index on June 28. Joining the index will improve WMIH’s visibility in the investment community and could improve liquidity in the stock.

#4 Oclaro, Inc. (NASDAQ:OCLR)

– Number of Hedge Fund Holders (as of June 30): 29
– Total Value of Hedge Fund Holdings (as of June 30): $113.46 million
– Hedge Fund Holdings as Percent of Float (as of June 30): 20.70%

Oclaro, Inc. (NASDAQ:OCLR), a leading provider and innovator of optical communications solutions, reported solid results for its fourth quarter of fiscal 2016, earning $0.11 per share on revenue of $125.18 million. Guidance for the first quarter of fiscal 2017 was for revenue of between $126 million and $134 million and adjusted operating income in the range of $12 million-to-$16 million. The fiscal fourth quarter results beat the bottom- and top-line consensus estimates by $0.05 per share and $5.52 million, respectively, and may have been the reason for short interest in Oclaro dropping to 7.66 million shares on August 15 from 20.2 million shares on July 29. Shares of Oclaro have rallied by 112% year-to-date.

We have hedge funds’ three favorite micro-cap stocks on the second page of this article.

#3 Callaway Golf Co (NYSE:ELY)

– Number of Hedge Fund Holders (as of June 30): 29
– Total Value of Hedge Fund Holdings (as of June 30): $172.03 million
– Hedge Fund Holdings as Percent of Float (as of June 30): 17.90%

29 hedge funds owned shares of Callaway Golf Co (NYSE:ELY) at the end of the second quarter, up by one fund from the end of the prior quarter. Together those 29 funds held 17.9% of Callaway’s float, making Callaway Golf the third most-loved micro-cap stock among the hedge funds in our system. Callaway reported better-than-expected earnings for its second quarter, beating estimates by $0.06 per share with EPS of $0.36. The company also received some good news in early-August when Nike Inc. (NYSE:NKE) announced that it would stop selling golf clubs and bags. Jim Simons’ Renaissance Technologies increased its stake in Callaway by 11% to almost 1.00 million shares as of the end of June.

#2 AK Steel Holding Corporation (NYSE:AKS)

– Number of Hedge Fund Holders (as of June 30): 32
– Total Value of Hedge Fund Holdings (as of June 30): $221.39 million
– Hedge Fund Holdings as Percent of Float (as of June 30): 26.60%

Given the massive rally in steel stocks this year, it’s not surprising that 32 hedge funds were long AK Steel Holding Corporation (NYSE:AKS) at the end of the second quarter, up by 15 funds from the end of the first quarter. With some analysts predicting hot-rolled coil prices could range from $550-to-$600/ton in 2017 on the back of strong demand and potentially weaker imports, AK Steel’s EPS and selling prices could continue to beat expectations just as they did in the second quarter. Analysts have a $5.60 price target on AK Steel shares, about $1.00 above their current price.

#1 California Resources Corp (NYSE:CRC)

– Number of Hedge Fund Holders (as of June 30): 35
– Total Value of Hedge Fund Holdings (as of June 30): $139.48 million
– Hedge Fund Holdings as Percent of Float (as of June 30): 27.90%

With 28% of the float short and almost 28% of the float long by funds, California Resources Corp (NYSE:CRC) is a battleground stock. On one hand, the company’s high debt load could doom the stock if oil prices stay low. On the other hand, California Resources has substantial upside given its quality assets if WTI recovers. Our data shows the smart money is becoming more cautiously optimistic; the number of funds that we track with holdings in California Resources Corp (NYSE:CRC) rose by three quarter-over-quarter to 35 at the end of June, making the stock the most widely held micro-cap on our list.

Disclosure: None