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Did Hedge Funds Make The Right Call On Ultra Clean Holdings Inc (UCTT) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ultra Clean Holdings Inc (NASDAQ:UCTT) and determine whether hedge funds had an edge regarding this stock.

Ultra Clean Holdings Inc (NASDAQ:UCTT) was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. UCTT investors should be aware of an increase in hedge fund sentiment recently. There were 19 hedge funds in our database with UCTT positions at the end of the previous quarter. Our calculations also showed that UCTT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are numerous tools investors use to grade stocks. Two of the less known tools are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can beat the broader indices by a solid margin (see the details here).

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s analyze the key hedge fund action encompassing Ultra Clean Holdings Inc (NASDAQ:UCTT).

What have hedge funds been doing with Ultra Clean Holdings Inc (NASDAQ:UCTT)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in UCTT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is UCTT A Good Stock To Buy?

The largest stake in Ultra Clean Holdings Inc (NASDAQ:UCTT) was held by Divisar Capital, which reported holding $26.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $14 million position. Other investors bullish on the company included Arrowstreet Capital, Driehaus Capital, and G2 Investment Partners Management. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Ultra Clean Holdings Inc (NASDAQ:UCTT), around 10.26% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, dishing out 1.39 percent of its 13F equity portfolio to UCTT.

As industrywide interest jumped, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in Ultra Clean Holdings Inc (NASDAQ:UCTT). Point72 Asset Management had $3.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $3.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, D. E. Shaw’s D E Shaw, and Renaissance Technologies.

Let’s check out hedge fund activity in other stocks similar to Ultra Clean Holdings Inc (NASDAQ:UCTT). These stocks are Apogee Enterprises, Inc. (NASDAQ:APOG), Aegion Corp (NASDAQ:AEGN), Frequency Therapeutics, Inc. (NASDAQ:FREQ), and eXp World Holdings, Inc. (NASDAQ:EXPI). This group of stocks’ market caps are similar to UCTT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APOG 13 54302 -3
AEGN 7 16746 0
FREQ 8 98307 -1
EXPI 6 14324 -1
Average 8.5 45920 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $74 million in UCTT’s case. Apogee Enterprises, Inc. (NASDAQ:APOG) is the most popular stock in this table. On the other hand eXp World Holdings, Inc. (NASDAQ:EXPI) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ultra Clean Holdings Inc (NASDAQ:UCTT) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on UCTT as the stock returned 64% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.