Hedge Funds Are Buying Ambac Financial Group, Inc. (AMBC)

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Ambac Financial Group, Inc. (NASDAQ:AMBC) a buy, sell, or hold? Investors who are in the know are surely in a bullish mood. The number of bullish hedge fund positions increased by 1 in recent months. AMBC was in 21 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with AMBC holdings at the end of the previous quarter. At the end of this article we will also compare AMBC to other stocks including Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), Asanko Gold Inc (NYSEAMEX:AKG), and Barnes & Noble, Inc. (NYSE:BKS) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

Hedge fund activity in Ambac Financial Group, Inc. (NASDAQ:AMBC)

At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a gain of 5% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in AMBC heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Canyon Capital Advisors, led by Joshua Friedman and Mitchell Julis, holds the most valuable position in Ambac Financial Group, Inc. (NASDAQ:AMBC). Canyon Capital Advisors has a $39.7 million position in the stock, comprising 1.4% of its 13F portfolio. On Canyon Capital Advisors’ heels is Alden Global Capital, led by Randall Smith, holding a $31.9 million position; 32.3% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish consist of William C. Martin’s Raging Capital Management, Mark T. Gallogly’s Centerbridge Partners and John Petry’s Sessa Capital. We should note that two of these hedge funds (Raging Capital Management and Sessa Capital) are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, key money managers have been driving this bullishness. Venor Capital Management, led by Jeffrey Bersh and Michael Wartell, created the largest position in Ambac Financial Group, Inc. (NASDAQ:AMBC). Venor Capital Management had $12.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Steven Tananbaum’s GoldenTree Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Ken Griffin’s Citadel Investment Group.

Let’s go over hedge fund activity in other stocks similar to Ambac Financial Group, Inc. (NASDAQ:AMBC). These stocks are Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), Asanko Gold Inc (NYSEAMEX:AKG), Barnes & Noble, Inc. (NYSE:BKS), and ARMOUR Residential REIT, Inc. (NYSE:ARR). All of these stocks’ market caps match AMBC’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $179 million in AMBC’s case. Barnes & Noble, Inc. (NYSE:BKS) is the most popular stock in this table. On the other hand ARMOUR Residential REIT, Inc. (NYSE:ARR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ambac Financial Group, Inc. (NASDAQ:AMBC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None