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Hedge Funds Have Never Been This Bullish On Leaf Group Ltd. (LEAF)

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Leaf Group Ltd. (NYSE:LEAF) changed recently.

Is Leaf Group Ltd. (NYSE:LEAF) undervalued? Prominent investors are taking a bullish view. The number of long hedge fund positions improved by 4 lately. Our calculations also showed that LEAF isn’t among the 30 most popular stocks among hedge funds. LEAF was in 11 hedge funds’ portfolios at the end of March. There were 7 hedge funds in our database with LEAF holdings at the end of the previous quarter.

If you’d ask most market participants, hedge funds are seen as underperforming, old investment tools of years past. While there are over 8000 funds trading at present, Our experts choose to focus on the top tier of this club, approximately 750 funds. Most estimates calculate that this group of people shepherd the lion’s share of all hedge funds’ total capital, and by watching their inimitable picks, Insider Monkey has determined many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).

Roger Ibbotson Zebra Capital

We’re going to go over the latest hedge fund action surrounding Leaf Group Ltd. (NYSE:LEAF).

How have hedgies been trading Leaf Group Ltd. (NYSE:LEAF)?

Heading into the second quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 57% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LEAF over the last 15 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

LEAF_june2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Peter S. Park’s Park West Asset Management has the biggest position in Leaf Group Ltd. (NYSE:LEAF), worth close to $16.7 million, comprising 0.7% of its total 13F portfolio. The second largest stake is held by Osmium Partners, managed by John H Lewis, which holds a $10.1 million position; the fund has 8.5% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions contain Jim Simons’s Renaissance Technologies, and Chuck Royce’s Royce & Associates.

As one would reasonably expect, specific money managers have jumped into Leaf Group Ltd. (NYSE:LEAF) headfirst. Roumell Asset Management, managed by Jim Roumell, created the most outsized position in Leaf Group Ltd. (NYSE:LEAF). Roumell Asset Management had $0.8 million invested in the company at the end of the quarter. Bradley Louis Radoff’s Fondren Management also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new LEAF investors: Roger Ibbotson’s Zebra Capital Management and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks similar to Leaf Group Ltd. (NYSE:LEAF). These stocks are Potbelly Corp (NASDAQ:PBPB), Arbutus Biopharma Corp (NASDAQ:ABUS), FedNat Holding Company  (NASDAQ:FNHC), and Jounce Therapeutics, Inc. (NASDAQ:JNCE). All of these stocks’ market caps are closest to LEAF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBPB 12 47817 0
ABUS 9 12365 0
FNHC 9 29997 1
JNCE 10 7393 2
Average 10 24393 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $47 million in LEAF’s case. Potbelly Corp (NASDAQ:PBPB) is the most popular stock in this table. On the other hand Arbutus Biopharma Corp (NASDAQ:ABUS) is the least popular one with only 9 bullish hedge fund positions. Leaf Group Ltd. (NYSE:LEAF) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately LEAF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LEAF were disappointed as the stock returned -10.3% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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