Should You Add Travelzoo Inc. (TZOO) to Your Portfolio?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Travelzoo Inc. (NASDAQ:TZOO).

Travelzoo Inc. (NASDAQ:TZOO) investors should pay attention to an increase in hedge fund interest recently. TZOO was in 9 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with TZOO holdings at the end of the previous quarter. At the end of this article we will also compare TZOO to other stocks including Allot Communications Ltd. (NASDAQ:ALLT), Northrim BanCorp, Inc. (NASDAQ:NRIM), and Owens Realty Mortgage Inc (NYSEMKT:ORM) to get a better sense of its popularity.

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 are hedge funds trading Travelzoo Inc. (NASDAQ:TZOO)?

Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, up by 50% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in TZOO over the last 5 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, John H Lewis’ Osmium Partners has the biggest position in Travelzoo Inc. (NASDAQ:TZOO), worth close to $6.4 million, comprising 5.3% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $5.8 million position. Some other professional money managers with similar optimism encompass D E Shaw, one of the biggest hedge funds in the world, and Israel Englander’s Millennium 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.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Osmium Partners created the most valuable call position in Travelzoo Inc. (NASDAQ:TZOO). Chao Ku’s Nine Chapters Capital Management also made a $0.2 million investment in the stock during the quarter. The other funds with brand new TZOO positions are Ken Griffin’s Citadel Investment Group, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Travelzoo Inc. (NASDAQ:TZOO) but similarly valued. We will take a look at Allot Communications Ltd. (NASDAQ:ALLT), Northrim BanCorp, Inc. (NASDAQ:NRIM), Owens Realty Mortgage Inc (NYSEMKT:ORM), and Rightside Group Ltd (NASDAQ:NAME). This group of stocks’ market values match TZOO’s market value.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $19 million in TZOO’s case. Rightside Group Ltd (NASDAQ:NAME) is the most popular stock in this table. On the other hand Owens Realty Mortgage Inc (NYSEMKT:ORM) is the least popular one with only 4 bullish hedge fund positions. Travelzoo Inc. (NASDAQ:TZOO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NAME might be a better candidate to consider taking a long position in.

Disclosure: None