The most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year, according to our work analyzing our database of 13F filings (learn more about our small cap strategy). We think that this is because small cap stocks- with the exception of some well-known consumer goods or technology companies- receive less attention from large institutional investors and the financial media, and so have a higher chance of being undervalued (or overvalued). Investors can also take advantage of this line of thinking by reviewing small cap picks from top fund managers, not to blindly follow their picks but to become familiar with less well known stocks and do further research on any which seem interesting. Read on for five stocks with market capitalizations between $1 billion and $5 billion which billionaire Leon Cooperman’s Omega Advisors owned at the end of December (or see the full list of stocks Cooperman reported owning):
The fund reported a position of 5 million shares in Atlas Pipeline Partners, L.P. (NYSE:APL) according to its 13F. Atlas Pipeline Partners is a $2.2 billion market cap company involved in gathering, processing, and transporting natural gas. Natural gas development in the onshore U.S. has been dramatic in recent years, potentially creating upside for pipeline companies, and the current dividend yield is 6.7% going by recent dividend payments. Dmitry Balyasny’s Balyasny Asset Management initiated a position of 1.1 million shares in Atlas during the fourth quarter of 2012 (check out Balyasny’s stock picks).
SandRidge Energy Inc. (NYSE:SD), which appears to be nearing the end of an activist battle with management as a number of hedge funds will soon have the opportunity to replace the natural gas and oil producer’s CEO (as happened earlier this year at energy company Chesapeake (NYSE:CHK), was another of Cooperman’s picks. At a market capitalization of $2.5 billion, the stock trades at 27 times its trailing earnings but analysts expect that the company’s overexpansion will leave it unprofitable in both 2013 and 2014.