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Do Hedge Funds Love Ultra Clean Holdings Inc (UCTT)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 4 percentage points during the first 9 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Ultra Clean Holdings Inc (NASDAQ:UCTT).

Is Ultra Clean Holdings Inc (NASDAQ:UCTT) a buy, sell, or hold? The smart money is buying. The number of long hedge fund positions increased by 2 in recent months. Our calculations also showed that UCTT isn’t among the 30 most popular stocks among hedge funds (see the video below). UCTT was in 11 hedge funds’ portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with UCTT positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

At the moment there are tons of metrics investors can use to evaluate their holdings. A pair of the most under-the-radar metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top money managers can beat the market by a healthy amount (see the details here).

UCTT_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the recent hedge fund action encompassing Ultra Clean Holdings Inc (NASDAQ:UCTT).

How have hedgies been trading Ultra Clean Holdings Inc (NASDAQ:UCTT)?

Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the first quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in UCTT a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Ken Griffin CITADEL INVESTMENT GROUP

The largest stake in Ultra Clean Holdings Inc (NASDAQ:UCTT) was held by Divisar Capital, which reported holding $26.2 million worth of stock at the end of March. It was followed by Royce & Associates with a $20 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and Citadel Investment Group.

As industrywide interest jumped, some big names were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the most valuable position in Ultra Clean Holdings Inc (NASDAQ:UCTT). Millennium Management had $7.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.3 million position during the quarter. The other funds with new positions in the stock are Thomas Bailard’s Bailard Inc and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ultra Clean Holdings Inc (NASDAQ:UCTT) but similarly valued. We will take a look at Antares Pharma Inc (NASDAQ:ATRS), Precision Drilling Corp (NYSE:PDS), Tredegar Corporation (NYSE:TG), and Vishay Precision Group Inc (NYSE:VPG). All of these stocks’ market caps are closest to UCTT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATRS 10 32726 -2
PDS 8 25795 -8
TG 11 66294 -1
VPG 14 158668 3
Average 10.75 70871 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $60 million in UCTT’s case. Vishay Precision Group Inc (NYSE:VPG) is the most popular stock in this table. On the other hand Precision Drilling Corp (NYSE:PDS) is the least popular one with only 8 bullish hedge fund positions. Ultra Clean Holdings Inc (NASDAQ:UCTT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on UCTT, though not to the same extent, as the stock returned 5.2% during the third quarter and outperformed the market as well.

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

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