Hedge Funds Have Never Been This Bullish On Ultra Clean Holdings Inc (UCTT)

In this article we will take a look at whether hedge funds think Ultra Clean Holdings Inc (NASDAQ:UCTT) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Ultra Clean Holdings Inc (NASDAQ:UCTT) the right investment to pursue these days? Prominent investors are buying. The number of long hedge fund positions improved by 5 lately. Our calculations also showed that UCTT 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Richard Driehaus of Driehaus Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. Keeping this in mind we’re going to take a look at the latest hedge fund action surrounding Ultra Clean Holdings Inc (NASDAQ:UCTT).

What have hedge funds been doing with Ultra Clean Holdings Inc (NASDAQ:UCTT)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in UCTT a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, Divisar Capital was the largest shareholder of Ultra Clean Holdings Inc (NASDAQ:UCTT), with a stake worth $26.3 million reported as of the end of September. Trailing Divisar Capital was Royce & Associates, which amassed a stake valued at $14 million. Arrowstreet Capital, Driehaus Capital, and G2 Investment Partners 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 Divisar Capital allocated the biggest weight to Ultra Clean Holdings Inc (NASDAQ:UCTT), around 10.26% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, dishing out 1.39 percent of its 13F equity portfolio to UCTT.

As aggregate interest increased, some big names were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Ultra Clean Holdings Inc (NASDAQ:UCTT). Point72 Asset Management had $3.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $3.1 million position during the quarter. The following funds were also among the new UCTT investors: Greg Eisner’s Engineers Gate Manager, D. E. Shaw’s D E Shaw, and Renaissance Technologies.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ultra Clean Holdings Inc (NASDAQ:UCTT) but similarly valued. These stocks are Apogee Enterprises, Inc. (NASDAQ:APOG), Aegion Corp (NASDAQ:AEGN), Frequency Therapeutics, Inc. (NASDAQ:FREQ), and eXp World Holdings, Inc. (NASDAQ:EXPI). 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
APOG 13 54302 -3
AEGN 7 16746 0
FREQ 8 98307 -1
EXPI 6 14324 -1
Average 8.5 45920 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $74 million in UCTT’s case. Apogee Enterprises, Inc. (NASDAQ:APOG) is the most popular stock in this table. On the other hand eXp World Holdings, Inc. (NASDAQ:EXPI) 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 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on UCTT as the stock returned 65% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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