Hedge Funds Are Buying Veritiv Corp (VRTV)

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. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. 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 Veritiv Corp (NYSE:VRTV).

Is Veritiv Corp (NYSE:VRTV) going to take off soon? The best stock pickers are unmistakably taking an optimistic view. The number of long hedge fund positions that are disclosed in regulatory 13F filings experienced an increase of 4 in recent months. There were 12 hedge funds in our database with VRTV holdings at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Denny’s Corporation (NASDAQ:DENN), Scorpio Tankers Inc. (NYSE:STNG), and TrueCar Inc (NASDAQ:TRUE) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Keeping this in mind, we’re going to take a look at the fresh action encompassing Veritiv Corp (NYSE:VRTV).

How have hedgies been trading Veritiv Corp (NYSE:VRTV)?

Heading into the fourth quarter of 2016, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a jump of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VRTV over the last 5 quarters. So, let’s examine 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, Seth Klarman’s Baupost Group has the largest position in Veritiv Corp (NYSE:VRTV), worth close to $152.7 million, accounting for 2.2% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $5.1 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Joel Greenblatt’s Gotham Asset Management, D E Shaw, one of the biggest hedge funds in the world, and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds 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.

Consequently, key hedge funds were leading the bulls’ herd. Gotham Asset Management, led by Joel Greenblatt, assembled the most valuable position in Veritiv Corp (NYSE:VRTV). According to regulatory filings, the fund had $1.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Jim Simons’s Renaissance Technologies and Mike Vranos’s Ellington.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Veritiv Corp (NYSE:VRTV) but similarly valued. We will take a look at Denny’s Corporation (NASDAQ:DENN), Scorpio Tankers Inc. (NYSE:STNG), TrueCar Inc (NASDAQ:TRUE), and Ingles Markets, Incorporated (NASDAQ:IMKTA). This group of stocks’ market caps match VRTV’s market cap.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $164 million in VRTV’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Ingles Markets, Incorporated (NASDAQ:IMKTA) is the least popular one with only 10 bullish hedge fund positions. Veritiv Corp (NYSE:VRTV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard STNG might be a better candidate to consider taking a long position in.

Disclosure: None