5 Best Small-Caps To Buy According To This Billionaire

The $3 trillion hedge fund industry which once used to be the darling of investors and normal stock traders is under pressure due to declining returns, high fees and scandals. But our research shows that hedge funds remain the best stock pickers, and piggybacking their selected moves still provide huge gains, only for those who know where to look. For example, in the third quarter, 627 out of 659 hedge funds in our database returned 8.3% from their long positions in companies which have a market cap of at least $1 billion, versus the S&P 500 ETFs’ return of 3.3%.

Similarly, our research has established that hedge funds tend to beat the market in small cap picks, about which there is always a scant publicly-available information, making it impossible for an average investor to evaluate the hidden gems in this sector. But hedge funds have enormous resources, connections and data-mining and research assets, and they are always aware of the best places to funnel money for future profits. Small cap stocks have outperformed large-cap index funds by more than 10 percentage points on average since the end of June. John Griffin’s Blue Ridge Capital is a case in point, whose small-cap picks outperformed the market by a noticeable margin. Backtests performed by Insider Monkey’s research team show that Blue Ridge Capital returned 0.97% per month from its positions in companies which have a market cap of $1 billion- $5 billion in the period between 1999-2012, whereas S&P 500 Index returned 0.32% per month in the same period. Having this performance metric in mind, let’s analyze Blue Ridge’s top 5 small-cap picks in the third quarter.

Gulfport Energy Corporation (NASDAQ:GPOR)

Blue Ridge Capital reported owning a $44.211 million stake in Gulfport Energy Corporation (NASDAQ:GPOR), or 1.56 million shares, at the end of the third quarter. The Oklahoma-based energy company recently announced acquisition of 12,600 net undeveloped acres located in Ohio in the core of the dry gas window of the Utica Shale for $87 million. Shares have rebounded recently along with natural gas prices and the stock is up over 18% year-to-date. At the end of the September quarter, 34 funds in our system were bullish on Gulfport Energy Corporation (NASDAQ:GPOR), down from 40 funds a quarter earlier.

Oasis Petroleum Inc. (NYSE:OAS)

John Griffin’s fund reported ownership of 4.29 million Oasis Petroleum Inc. (NYSE:OAS) shares at the end of the third quarter, with a net worth of $44.92 million. Shares of Texas-based oil and gas company have gained over 110% in value since the start of 2016. On Wednesday, KLR Group reiterated a ‘Buy rating’ for Oasis Petroleum (NYSE: OAS) and upped its price target to $22 from $19, citing the bright future prospects for Oasis due to recovering commodity prices and the company’s ownership of some prime fields in the Williston Basin. John H. Scully’s SPO Advisory Corp owns 19.91 million shares of Oasis Petroleum (NYSE: OAS), as of the end of the September quarter.

On the next page, we will analyze some other Blue Ridge’s small-cap picks.

 

CONSOL Energy Inc. (NYSE:CNX)

At the end of September, there were 3.37 million CONSOL Energy Inc. (NYSE:CNX) shares in Blue Ridge Capital’s portfolio, with a total value of $64.70 million. Shares of the energy stock have been red-hot this year, rising 179.5% year-to-date. First, bulls are optimistic on the company’s low cost natural gas operation, which has benefited of late from the higher natural gas prices. Second, many investors hope President-elect Donald Trump will follow through with his promises to help coal miners. If Trump can cut the bureaucratic red tape, demand for coal could increase and CONSOL could benefit. Mason Hawkins’ Southeastern Asset Management owns over 49.57 million shares of CONSOL Energy Inc. (NYSE:CNX), as of the end of the third quarter.

Ambarella Inc (NASDAQ:AMBA)

Blue Ridge Capital made no change to its stake in Ambarella Inc (NASDAQ:AMBA) in the third quarter, and moved in the last quarter of 2016 with 998,000 shares of the company, with a net market value of $73.46 million. Investment firm Oppenheimer reiterated a ‘Perform’ rating for the California-based video and image processing company after upbeat third quarter results in which revenue grew by 54% as compared to the last quarter and by 8% on a year-over-year basis. A total of 15 hedge funds tracked by Insider Monkey were bullish on Ambarella Inc (NASDAQ:AMBA) at the end of September. That’s out of 742 total funds in our system.

Platform Specialty Products Corp (NYSE:PAH)

Blue Ridge Capital reported ownership of over 12.78 million shares of Platform Specialty Products Corp (NYSE:PAH), with a total worth of $103.69 million as of the latest 13F filing. Last month, financial services firm Nomura Securities upgraded the rating for the chemical production company to ‘Buy’ from ‘Neutral’ and raised its price target to $12 from $11. Platform Specialty Products earned $0.14 per share in the third quarter, or $0.02 better than the analyst estimate of $0.12. Bill Ackman’s Pershing Square owns 42.74 million shares of Platform Specialty Products Corp (NYSE:PAH), as of the end of the third quarter.

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