Is Universal Corp (UVV) Going to Burn These Hedge Funds?

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Universal Corp (NYSE:UVV) from the perspective of those successful funds.

Universal Corp (NYSE:UVV) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the third quarter of 2016, same as at the end of the second 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 Box Inc (NYSE:BOX), EP Energy Corp (NYSE:EPE), and United Community Banks Inc (NASDAQ:UCBI) 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.

What does the smart money think about Universal Corp (NYSE:UVV)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UVV over the last 5 quarters, which shows a 40% increase in hedge fund positions in 2016. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Pzena Investment Management, led by Richard S. Pzena, holds the largest position in Universal Corp (NYSE:UVV). Pzena Investment Management has a $28.3 million position in the stock. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $14 million position. Other members of the smart money that hold long positions comprise Joel Greenblatt’s Gotham Asset Management, Jim Simons’ Renaissance Technologies, and Cliff Asness’ AQR 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.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that dropped their entire stakes in the stock during the third quarter. At the top of the heap, Alec Litowitz and Ross Laser’s Magnetar Capital dropped the biggest position of all the investors studied by Insider Monkey, comprising close to $0.2 million in stock, and Mike Vranos’ Ellington was right behind this move, as the fund dropped about $0.2 million worth of shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Universal Corp (NYSE:UVV) but similarly valued. We will take a look at Box Inc (NYSE:BOX), EP Energy Corp (NYSE:EPE), United Community Banks Inc (NASDAQ:UCBI), and TASER International, Inc. (NASDAQ:TASR). This group of stocks’ market values match UVV’s market value.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $68 million in UVV’s case. Box Inc (NYSE:BOX) is the most popular stock in this table. On the other hand United Community Banks Inc (NASDAQ:UCBI) is the least popular one with only 12 bullish hedge fund positions. Universal Corp (NYSE:UVV) 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 BOX might be a better candidate to consider taking a long position in.

Disclosure: None