Five Cheap Stocks Hedge Funds Are Bullish On

At Insider Monkey, we follow around 800 hedge funds and other institutional investors as part of our strategy, which involves identifying the most popular small-cap stocks among these investors (see more details here). In the last couple of months, the Russell 2000 Index, which is a benchmark for the small-cap space in the US stock market has underperformed the S&P 500 and analysts expect it to lag further in the near- to medium-term. However, one of the advantages of investing in small-caps is that they are relatively cheap, which can allow for more price inefficiency and provide higher returns, though they are usually associated with more risk. With this in mind, we have selected five stocks that are trading below $10 per share and rank as the most popular among the funds we track.

Most stocks in this list registered a decrease in popularity, which can be justified by their recent weak performance. Surprisingly, the iShares Russell 2000 ETF (IWM) saw more funds holding long positions over the quarter at the end of December (read more here). The fifth most-popular cheap stock among the funds we track is MGIC Investment Corp. (NYSE:MTG), in which 42 funds held stakes worth $1.02 billion in aggregate at the end of last year, compared to 47 funds holding shares worth $1.34 billion a quarter earlier. Nevertheless, the investors from our database still amassed nearly 34% of the company’s outstanding stock heading into 2016. Among them, Howard Marks’ Oaktree Capital Management owns 9.03 million shares of MGIC Investment Corp. (NYSE:MTG). MGIC Investment Corporation provides mortgage insurance and ancillary services. Over the last 52 weeks, MGIC’s stock has lost more than 21%, amid a considerable slide over the last couple of months. Earlier this month, Standard & Poor’s Ratings Service upgraded MGIC Investment Corp. (NYSE:MTG)’s core operating subsidiaries credit rating to ‘BBB’ from ‘BB+’. At the same time, S&P raised the unsolicited senior unsecured debt issue and counterparty credit rating to ‘BB’ and junior subordinated debt rating to ‘B+’. The upgrade in credit rating shows that the company has been on a path to improve its operating performance, the credit rating agency said.