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Ascent Capital Group Inc (ASCMA): Solid Investment or Sugary Speculation?

Value investor Mario Gabelli had a $35.8 million position in the shares of Ascent Capital Group Inc (NASDAQ:ASCMA) through GAMCO Investors according to his firm’s latest filings. Gabelli’s position was an increase of 2% over his previous one through GAMCO, and Gabelli was joined by several other funds upping their positions in ASCMA in their latest filings. Some of those funds include Wallace Capital, Renaissance Technologies, and Millennium Management. Wallace increased its stake by 13% to 371,642 shares with a value close to $15 million. Renaissance grew its position by 50% to 319,200 shares, and Millennium did the same but to an even greater extent – by 349% to 159,949 shares.

Ascent Capital Group Inc (NASDAQ:ASCMA)

These investments are interesting as it has been shown that tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. The most popular large-cap picks of hedge funds, however, underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. Ascent Capital is a small-cap stock that is popular with the aforementioned funds, despite a market capitalization of only $551 million. In forward tests since August 2012 the top 15 small-cap stocks of funds tracked by Insider Monkey beat the market by an impressive 84 percentage points, returning over 142% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.

In addition to the funds mentioned above, Okumus Fund Management and Chou Associates built new stakes in the shares of Ascent Capital Group Inc (NASDAQ:ASCMA). Okumus intiated a 157,163 share position with a value of $6.3 million, and Chou built a 140,000 share stake worth a little over $5.5 million. Rounding out the top ten holders in the securities of Ascent Capital among hedge funds are Wallace R. Weitz & Co., which maintained its 140,000-share holding, while Courage Capital and Eagle Capital slightly decreased their holdings – by 8% to 132,961 shares and 1% to 80,535 shares, respectively. All in all, hedge funds were largely bullish on Ascent Capital as of their latest 13F filings; however, it is worth mentioning that a few hedge funds exited their positions. Joel Greenblatt of Gotham Asset Management eliminated his position, and Weatherbie Capital, Bares Capital, and 12 West Capital followed Gotham in doing the same.

Ascent Capital has declined by 20% in 2015 and its latest earnings report was subpar as the company missed its revenue estimate by about $500,000, though it reported EPS on par with estimates. Still, analysts have an upbeat outlook on the stock with a mean and median price target of $55.00 – suggesting 30% upside from the current price of $42.13 – according to S&P Capital IQ. Even the low estimate of $45.00 is above Ascent Capital’s current share price of $42.00. As most small-cap stocks, though, Ascent Capital is thinly covered, with just three analysts reporting target prices. Zacks Research points out that revisions to the company’s estimates have been positive, however, and it rates Ascent Capital as a buy.

Although hedge funds and analysts seem to be bullish on Ascent Capital Group Inc (NASDAQ:ASCMA), it is a tough company to gauge as it has reported losses the last three years and is on track to do so again this year. Therefore, going along with hedge funds and taking heed to analyst advice may not be warranted in this case. Ascent Capital could be an acquisition candidate and an industry consolidation play, but that is more in the realm of speculation than it is in investment. Hedge funds and analysts have more access to company management, so they can best gauge the future prospects of this company. They seem positive now, but their sentiment could turn quickly. If an investor does decide to mirror hedge funds and follow analysts into Ascent Capital, he or she should monitor hedge fund activity, insider transactions, and analyst ratings extremely closely, even more so with Ascent Capital than with other stocks due to its unprofitable nature and thin coverage. That is not to say that Ascent Capital shares will not rise or the company will not be profitable in the future, it is just to say that it is difficult to discern based on past performance.

Disclosure: None

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