Is United Parcel Service, Inc. (UPS) a Good Stock to Buy?

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we will take a closer look at United Parcel Service, Inc. (NYSE:UPS) from the perspective of those elite funds.

Is United Parcel Service, Inc. (NYSE:UPS) a healthy stock for your portfolio? It looks like hedge funds are turning bullish, since the number of long hedge fund bets rose by seven lately. However, 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 Accenture Plc (NYSE:ACN), NIKE, Inc. (NYSE:NKE), and SAP AG (ADR) (NYSE:SAP) 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.

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Keeping this in mind, we’re going to take a peek at the new action surrounding United Parcel Service, Inc. (NYSE:UPS).

How are hedge funds trading United Parcel Service, Inc. (NYSE:UPS)?

At the end of the third quarter, 40 funds tracked by Insider Monkey were bullish on United Parcel Service, which represents an increase of 21% from the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Bill & Melinda Gates Foundation Trust, managed by Michael Larson, holds the biggest position in United Parcel Service, Inc. (NYSE:UPS). Bill & Melinda Gates Foundation Trust has a $494.9 million position in the stock, comprising 2.7% of its 13F portfolio. The second largest stake is held by Mike Masters’ Masters Capital Management, with a $166.3 million call position; 3.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism contain Phill Gross and Robert Atchinson’s Adage Capital Management and Ric Dillon’s Diamond Hill Capital.

Consequently, key money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the largest position in United Parcel Service, Inc. (NYSE:UPS). Two Sigma Advisors had $110.8 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $49.6 million position during the quarter. The following funds were also among the new UPS investors: Israel Englander’s Millennium Management, Ray Dalio’s Bridgewater Associates, and David Costen Haley’s HBK Investments.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as United Parcel Service, Inc. (NYSE:UPS) but similarly valued. These stocks are Accenture Plc (NYSE:ACN), NIKE, Inc. (NYSE:NKE), SAP AG (ADR) (NYSE:SAP), and Allergan, Inc. (NYSE:AGN). All of these stocks’ market caps are similar to UPS’s market cap.

As you can see these stocks had an average of 54 investors holding long positions and the average amount invested in these stocks was $3.98 billion. That figure was $1.53 billion in UPS’s case. Allergan, Inc. (NYSE:AGN) is the most popular stock in this table, while SAP AG (ADR) (NYSE:SAP) is the least popular one with only seven bullish hedge fund positions. United Parcel Service, Inc. (NYSE:UPS) 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 Allergan, Inc. (NYSE:AGN) might be a better candidate to consider a long position.