Summers Value Partners, an investment management firm, published its “Summers Value Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of -.4% net of fees was recorded by the fund for the third quarter of 2021, outpacing the Russell 2000 Index return of -4.6% and the Russell Micro-Cap Index return of -5.4%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Summers Value Partners, in its Q3 2021 investor letter, mentioned Inotiv Inc. (NASDAQ: NOTV) and discussed its stance on the firm. Inotiv Inc. is a West Lafayette, Indiana-based contract research organization with a $548.7 million market capitalization. NOTV delivered a 27.72% return since the beginning of the year, while its 12-month returns are up by 60.81%. The stock closed at $34.32 per share on October 15, 2021.
Here is what Summers Value Partners has to say about Inotiv Inc. in its Q3 2021 investor letter:
“Inotiv announced the acquisition of Envigo (private) in a $545 million transaction during the third quarter. A quick summary of the transaction can be found here. Envigo is a leading provider of research models to the pharmaceutical industry as well as academic centers and other contract research organizations (CROs) in the United States and Western Europe. The acquisition strengthens Inotiv’s business by ensuring a continuoussupply of research models at a time when demand is high and supply is limited. It also makes the company a more valuable service provider to its customers and creates significant cross-selling opportunities amongst a larger client base. On a pro forma basis, we expect Inotiv to generate $425-450 million of sales in 2022. With additional scale and operating leverage, the company’s EBITDA margin should approach 20% over the next few years. Using peer valuations from the CRO industry, we believe that Inotiv is worth $70-80 per share. The convertible debt offering that was used to finance the transaction has created a short-term overhang on the stock that we expect will dissipate in the months ahead. The stock remains a top position in the Fund today.”
Based on our calculations, Inotiv Inc. (NASDAQ: NOTV) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. NOTV was in 12 hedge fund portfolios at the end of the first half of 2021, compared to 9 funds in the previous quarter. Inotiv Inc. (NASDAQ: NOTV) delivered a 24.48% return in the past 3 months.
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
