Hedge Funds Are Hoarding Shares of These 5 Smid-caps

While mega-caps and large-caps tend to offer predictability and stability, two attributes that are very valuable in a market as volatile as the one we’ve seen in recent months, they are also more likely to have limited upside potential. On the other hand, smaller companies, like smid-caps, are more likely to be undervalued or have high growth capability, and thus can represent interesting opportunities for retail investors; it’s all about picking the right stock. While individual investors don’t have the time or resources to find these stocks that are bound to outperform the market, institutional investors do and our research has shown that their top small-cap picks can greatly outperform the market (see more details here). So in this article, we will take a look at five smid-cap stocks that are especially popular among the funds that we track, in order to provide readers with a few ideas that could help them achieve superior returns.

Let’s start with the most popular smid-cap stock in this list: Cheniere Energy, Inc. (NYSEMKT:LNG). Despite a 12.9% reduction in the number of funds long the stock over the fourth quarter, the $7.75 billion market cap company counted 54 supporters in our database as of December 31. The value of their holdings amounted to $5.83 billion, down from $7.12 billion in the previous quarter. In spite of the tumble, these positions accounted for approximately 66.3% of the company’s outstanding stock. The largest stake at the end of 2015 was held by Carl Icahn’s Icahn Capital LP, which disclosed ownership of 32.68 million shares valued at more than $1.2 billion. However, on January 8, Seth Klarman’s Baupost Group declared a large increase to its exposure to the company, to 37.08 million shares on January 8 from 26.08 million shares held on December 31.

While shares of Cheniere Energy, Inc. (NYSEMKT:LNG) are down by more than 4% year-to-date, most of the losses were registered during January. Over the past month the shares have gained 46%, accompanying the wider rebound in the energy sector, in spite of the earnings miss that it posted and the resignation of its co-founder and former CEO Charif Souki from the company’s board. A few days ago, analysts at JP Morgan initiated coverage of the stock with an ‘Overweight’ rating and $54 price target.

OneMain Holdings Inc (NYSE:OMF), formerly Springleaf Holdings, is a $3 billion responsible loan products provider that counted 28 supporters among the investors that we track, with them owning 61.2% of the company’s total shares by the end of the fourth quarter. Michael Novogratz’s Fortress Investment Group disclosed ownership of 77.44 million shares worth more than $3.05 billion at the end of 2015, making it by far the largest shareholder of record in the company.

A few weeks ago, OneMain Holdings Inc (NYSE:OMF) posted fourth quarter earnings of $0.77 per share, $0.24 above the Street’s consensus, and net interest income of $469 million, up by 83.1% year-over-year, and $27.65 million ahead of estimates. Following the earnings call, Barclays initiated coverage on the stock with an ‘Overweight’ rating and $35.00 price target, while FBR Capital reiterated an ‘Outperform’ rating, but lowered its price target to $40.00 from $65.00. Shares are currently trading below $24.00.

Another popular smid-cap stock among the almost 800 funds that we monitor is Spirit AeroSystems Holdings, Inc. (NYSE:SPR), which counted the support of 44 of these firms at the end of the fourth quarter. Even though this figure represented a 12% decline from the prior quarter, the aggregate value of their holdings increased to $2.91 billion from $2.77 billion, as the stock gained 3.58% over the October-to-December period. These stakes accounted for 41.5% of the company’s total shares.

Among the Spirit AeroSystems Holdings, Inc. (NYSE:SPR) bulls is Matt Sirovich and Jeremy Mindich’s Scopia Capital, which disclosed ownership of 16.32 million shares, worth about $817 million as of December 31. The fund managers are probably not very happy with the stock’s performance this year, as shares have tumbled by over 8.3%, underperforming the S&P 500, which has lost 2.8% year-to-date. However, it should be noted that most of the losses were registered over the first few weeks of the year, and were part of a wider decline in the stock market. Most recently, the stock has done better, and that is likely to continue especially following the news that it was selected as one of seven subcontractors on Northrop Grumman Corporation (NYSE:NOC)’s new B-21 Bomber program.

Hertz Global Holdings Inc (NYSE:HTZ) was also very popular among the funds that we track. Even in spite of the 14.94% decline the stock experienced over the fourth quarter, the company counted 52 supporters in our database by the end of the period. Their holdings, valued at $2.48 billion on December 31, accounted for 39.4% of the company’s outstanding stock. Once again, Icahn Capital LP was the largest shareholder of record by the end of the fourth quarter, with 63.7 million shares valued at more than $906 million. A couple of days ago, Hertz Global Holdings Inc (NYSE:HTZ) announced the appointment of a new Senior Vice President of Global Franchise Operations. As of March 7, Robert Barton became responsible for the firm’s “worldwide franchise strategy and execution,” a press release explained.

Finally, there’s Restaurant Brands International Inc (NYSE:QSR), the parent company of Tim Hortons and Burger King Worldwide. As of the end of the fourth quarter, 29 funds among those we track were long the company, with their positions valued at $2.87 billion and accounting for 37.9% of the company’s outstanding stock. Among the company’s notable backers are Bill Ackman’s Pershing Square, which held 38.00 million shares on December 31, and Warren Buffett’s Berkshire Hathaway, with 8.43 million shares at the end of 2015.

Restaurant Brands International Inc (NYSE:QSR) reported fourth quarter earnings of $0.35 per share on February 16, above the $0.30 consensus estimate. Sales of $1.06 billion also beat expectations by $30 million. Following the earnings call, Sterne Agee reiterated an ‘Equal-weight’ rating on the stock, but lowered its price target from $36.00 $42.00 due to its limited risk/reward profile.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.