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Hedge Funds Are Selling Verso Corporation (VRS)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Verso Corporation (NYSE:VRS)?

Verso Corporation (NYSE:VRS) was in 20 hedge funds’ portfolios at the end of March. VRS has experienced a decrease in hedge fund interest in recent months. There were 22 hedge funds in our database with VRS holdings at the end of the previous quarter. Our calculations also showed that VRS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the fresh hedge fund action regarding Verso Corporation (NYSE:VRS).

Hedge fund activity in Verso Corporation (NYSE:VRS)

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VRS over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, SCW Capital Management was the largest shareholder of Verso Corporation (NYSE:VRS), with a stake worth $25.3 million reported as of the end of September. Trailing SCW Capital Management was Royce & Associates, which amassed a stake valued at $22.3 million. Skylands Capital, Solas Capital Management, and Redwood Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SCW Capital Management allocated the biggest weight to Verso Corporation (NYSE:VRS), around 22.6% of its 13F portfolio. Solas Capital Management is also relatively very bullish on the stock, dishing out 8.55 percent of its 13F equity portfolio to VRS.

Seeing as Verso Corporation (NYSE:VRS) has faced falling interest from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, Howard Marks’s Oaktree Capital Management dropped the largest investment of the 750 funds monitored by Insider Monkey, valued at about $12.2 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $2.7 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Verso Corporation (NYSE:VRS). We will take a look at Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX), United Insurance Holdings Corp. (NASDAQ:UIHC), The Pennant Group, Inc. (NASDAQ:PNTG), and Agilysys, Inc. (NASDAQ:AGYS). This group of stocks’ market values resemble VRS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPRX 20 79699 1
UIHC 9 4573 -3
PNTG 8 16893 2
AGYS 14 85802 -2
Average 12.75 46742 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $92 million in VRS’s case. Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) is the most popular stock in this table. On the other hand The Pennant Group, Inc. (NASDAQ:PNTG) is the least popular one with only 8 bullish hedge fund positions. Verso Corporation (NYSE:VRS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately VRS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VRS were disappointed as the stock returned 8.4% during the same time period 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 many of these stocks already outperformed the market so far this year.

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