Hedge Funds Are Buying Essendant Inc (ESND)

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Essendant Inc (NASDAQ:ESND).

Essendant Inc (NASDAQ:ESND) was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. ESND shareholders have witnessed an increase in hedge fund interest of late. There were 11 hedge funds in our database with ESND positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hersha Hospitality Trust (NYSE:HT), GasLog Partners LP (NYSE:GLOP), and istar Inc (NYSE:STAR) to gather more data points.

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.

How have hedgies been trading Essendant Inc (NASDAQ:ESND)?

Heading into the fourth quarter of 2016, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, up by 38% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards ESND over the last 5 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Richard S. Pzena’s Pzena Investment Management has the largest position in Essendant Inc (NASDAQ:ESND), worth close to $24.7 million. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $4.3 million position. Remaining hedge funds and institutional investors that are bullish comprise David Brown’s Hawk Ridge Management, Renaissance Technologies, one of the largest hedge funds in the world, and Roger Ibbotson’s Zebra Capital Management. We should note that none of these hedge funds 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.

Consequently, some big names have been driving this bullishness. Hawk Ridge Management assembled the most valuable position in Essendant Inc (NASDAQ:ESND). Hawk Ridge Management had $4.2 million invested in the company at the end of the quarter. Renaissance Technologies also made a $2.3 million investment in the stock during the quarter. The other funds with brand new ESND positions are John Overdeck and David Siegel’s Two Sigma Advisors and Paul Tudor Jones’ Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Essendant Inc (NASDAQ:ESND) but similarly valued. We will take a look at Hersha Hospitality Trust (NYSE:HT), GasLog Partners LP (NYSE:GLOP), istar Inc (NYSE:STAR), and Greenlight Capital Re, Ltd. (NASDAQ:GLRE). This group of stocks’ market valuations match ESND’s market valuation.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $40 million in ESND’s case. istar Inc (NYSE:STAR) is the most popular stock in this table. On the other hand GasLog Partners LP (NYSE:GLOP) is the least popular one with only 3 bullish hedge fund positions. Essendant Inc (NASDAQ:ESND) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard STAR might be a better candidate to consider taking a long position in.

Disclosure: None