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Hedge Funds Are Selling Ultra Clean Holdings Inc (UCTT)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Ultra Clean Holdings Inc (NASDAQ:UCTT) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Ultra Clean Holdings Inc (NASDAQ:UCTT) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 24. UCTT investors should be aware of a decrease in hedge fund sentiment of late. There were 24 hedge funds in our database with UCTT positions at the end of the first quarter. Our calculations also showed that UCTT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a peek at the new hedge fund action encompassing Ultra Clean Holdings Inc (NASDAQ:UCTT).

How are hedge funds trading Ultra Clean Holdings Inc (NASDAQ:UCTT)?

At second quarter’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UCTT over the last 20 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is UCTT A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Divisar Capital, managed by Steven Baughman, holds the biggest position in Ultra Clean Holdings Inc (NASDAQ:UCTT). Divisar Capital has a $31.1 million position in the stock, comprising 9% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, managed by Chuck Royce, which holds a $22.3 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other peers that are bullish include Richard Driehaus’s Driehaus Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Josh Goldberg’s G2 Investment Partners Management. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Ultra Clean Holdings Inc (NASDAQ:UCTT), around 8.99% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, dishing out 1.78 percent of its 13F equity portfolio to UCTT.

Seeing as Ultra Clean Holdings Inc (NASDAQ:UCTT) has witnessed declining sentiment from the smart money, we can see that there lies a certain “tier” of money managers that elected to cut their positions entirely heading into Q3. At the top of the heap, Steve Cohen’s Point72 Asset Management said goodbye to the largest position of the “upper crust” of funds watched by Insider Monkey, totaling about $3.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $0.7 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q3.

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 Colony Credit Real Estate, Inc. (NYSE:CLNC), Livent Corporation (NYSE:LTHM), Central European Media Enterprises Ltd. (NASDAQ:CETV), New Mountain Finance Corp. (NYSE:NMFC), AZZ Incorporated (NYSE:AZZ), Virtus Investment Partners Inc (NASDAQ:VRTS), and Granite Construction Incorporated (NYSE:GVA). This group of stocks’ market caps are similar to UCTT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLNC 6 36919 -5
LTHM 19 31900 4
CETV 12 42389 1
NMFC 10 20587 -3
AZZ 20 56535 3
VRTS 10 57944 -2
GVA 13 34126 -3
Average 12.9 40057 -0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $106 million in UCTT’s case. AZZ Incorporated (NYSE:AZZ) is the most popular stock in this table. On the other hand Colony Credit Real Estate, Inc. (NYSE:CLNC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ultra Clean Holdings Inc (NASDAQ:UCTT) is more popular among hedge funds. Our overall hedge fund sentiment score for UCTT is 80.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately UCTT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UCTT were disappointed as the stock returned -5.2% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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