Hedge Funds Are Betting Big on These Q2 IPOs

The US initial public offering (IPO) market has been rather quiet during the second quarter. Uncertainty related to a potential interest rate increase by the Federal Reserve and to the UK’s Brexit vote have caused companies to delay their IPO plans to the third quarter. Nevertheless, there were a number of companies that decided to proceed despite everything. In this article, we’ll take a look at five post-IPO companies that hedge funds snapped up during the second quarter and see how they have fared since then.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see more details here).

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Bets On Hospital Operator

Opening our top five is Quorum Health Corp (NYSE:QHC). At the end of the quarter, 17 of the funds followed by Insider Monkey had this stock in their equity portfolios, having amassed 30% of the company’s outstanding stock in aggregate. David Einhorn‘s Greenlight Capital had the largest position, having acquired 2.9 million shares worth a little over $31 million according to its latest 13F filing. David Tepper and Appaloosa Management are also betting on this stock, having disclosed ownership of 771,436 shares valued at $8.26 million. A spin-off from Community Health Systems (NYSE:CYH), Quorum Health Corp (NYSE:QHC) owns and operates hospitals. Immediately after the IPO, the stock turned south and is currently down by 52%. For the second quarter, the company posted $529.7 million in revenue and a loss of $8.63 per share.

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High Demand For Ingevity Corp

Next up is Ingevity Corp (NYSE:NGVT), a stock that could be found in the equity portfolio of 19 of the funds in our database. Howard Guberman and Sean Dany‘s Gruss Asset Management made a $40.8 million investment in this company, having reported ownership of exactly 1.2 million shares at the end of the quarter. Noah Levy and Eugene Dozortsev have also established a fresh position for their fund, Newtyn Management, having acquired 1.05 million shares reportedly worth $35.9 million. A manufacturer of specialty chemicals and high-performance carbon materials, Ingevity Corp (NYSE:NGVT) has enjoyed a nice rally since going public, with shares having appreciated by 82% through yesterday’s closing price of $41.95 per share. Analysts at KeyCorp initiated coverage of the stock at the beginning of July and assigned an ‘Overweight’ rating with a price target of $43 per share, which was already surpassed earlier this month. For the second quarter, Ingevity Corp (NYSE:NGVT) reported a 5% decline in net sales to $248.7 million and a profit of $25.8 million or $0.66 per share when adjusted for one-time costs.

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Turn the page to find out which IPOs ranked on the first three spots among the investors we track.

Betting On Las Vegas Recovery

The IPO of Red Rock Resorts Inc (NASDAQ:RRR) attracted the attention of 21 of investors tracked by Insider Monkey, which collectively held 20% of the company’s common stock at the end of June. The largest position was disclosed by Serengeti Asset Management, a fund run by Jody Lanasa. According to its latest 13F filing, the fund held approximately 1.62 million shares worth $33.6 million, making this its largest equity position. Jacob Doft‘s Highline Capital Management was also invested, having acquired a little over 1.31 million shares valued at $28.8 million. Red Rock Resorts Inc (NASDAQ:RRR) operates and manages 21 casino and entertainment resorts in Las Vegas. The company has a market cap of $2.63 billion and pays an annual dividend of $0.40 per share, providing investors with a 1.75% yield. Analysts at Citigroup have recently reiterated their ‘Buy’ rating on Red Rock Resorts Inc (NASDAQ:RRR), having also set a $25 price target, which implies an upside potential of 10%.

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Bullish On US Foods Holding Corp

The runner up in this top is US Foods Holding Corp (NYSE:USFD), which 27 of the funds we follow reported in their equity portfolios for the end of June. Ricky Sandler’s Eminence Capital made a $121 million investment in the company, having bought some 5.02 million shares. Billionaire Ken Griffin‘s Citadel Investment Group has also placed a large bet on US Foods Holding Corp (NYSE:USFD), as it held 4.52 million shares worth a little over $109 million at the end of June. Following the IPO, the stock has been wobbling around without a clear director, oscillating between $23 and $25.5 levels. US Foods Holding Corp (NYSE:USFD) managed to stay in line with analysts’ estimates for the second quarter, having reported $5.8 billion in sales and a loss of $0.07 per share. Analysts at Bank of America Corp initiated coverage on this stock at the end of June and have assigned a ‘Buy’ rating and a price target of $29 per share.

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REITs Are Hot

The most popular company that went public during the second quarter was MGM Growth Properties LLC (NYSE:MGP). By the end of June, 28 of the funds we track had established a position in this stock, amassing 26% of the company’s outstanding shares. According to its latest 13F filing, Anand Parekh’s Alyeska Investment Group held 2.05 million shares worth roughly $54.8 million at the end of the quarter. Ken Griffin and his team have invested in MGM Growth Properties LLC (NYSE:MGP) as well, with Citadel Investment Group holding 1.93 million shares valued at $51.4 million. The company has a market cap of $1.5 billion and pays an annual dividend of $1.43 per share, providing investors with a nice 5.5% yield. For the second quarter, the real estate investment trust posted $64.5 million in funds from operations, or $0.32 per share. The results was roughly in line with analysts’ expectations, who had projected $0.31 per share. MGM Growth Properties LLC (NYSE:MGP) also posted $110.9 million in revenue for the period.

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Disclosure: none.