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Hedge Funds’ Favorite Recently-Public Companies amid Atrophied IPO Market

There was not a single initial public offering in January and the U.S. IPO market has almost evaporated in 2016. However, this week will most likely be the busiest for the nation’s IPO market in 2016, as six companies are set to go public over the course of the week. The intrinsic value of a company is fully dependent upon its current and future cash flow streams generated over its lifetime. As a result, the worries over a slowing global economy create uncertainties about a company’s future cash flows, which makes it particularly hard to conduct an appropriate valuation analysis. So the extreme uncertainty and volatility in financial markets add to companies’ reluctance to conduct IPOs and hinder investors’ willingness to invest in scheduled IPOs. Moreover, there are only a few investors who would be willing to invest in an IPO if they were to consider the performance of IPO companies in 2015. Nonetheless, Insider Monkey decided to lay out a list of five most popular IPOs conducted in the first quarter of 2016 based on hedge fund sentiment, as well as discuss the performance of those freshly-listed companies since going public.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. Nuvectra Corp (NASDAQ:NVTR)

– Investors with long positions as of March 31: 15

– Aggregate value of investors’ holdings as of March 31: $7.62 Million

There were 15 hedge funds tracked by Insider Monkey that had equity investments in Nuvectra Corp (NASDAQ:NVTR) at the end of the March quarter, which were aggregately valued at $7.62 million on March 31. In mid-March, medical devices manufacturer Greatbatch Inc. (NYSE:GB) completed the spin-off of its wholly-owned subsidiary QiG Group LLC and its subsidiaries Algostim LLC, PelviStim LLC and NeuroNexus Technologies into a publicly-traded company called Nuvectra Corporation. The newly spun-off company, which operates as a neurostimulation medical device company, recorded total revenue of $2.1 million for the first quarter of 2016 versus $1.2 million in the same quarter of 2015. Going back to the aforementioned separation, Greatbatch shareholders received one share of Nuvectra for every three shares of Greatbatch. Shares of Nuvectra are up 10% since mid-March. Dov Gertzulin’s DG Capital Management LLC owns nearly 271,000 shares of Nuvectra Corp (NASDAQ:NVTR) as of March 31.

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