Is U.S. Xpress Enterprises, Inc. (USX) A Good Stock To Buy?

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like U.S. Xpress Enterprises, Inc. (NYSE:USX).

U.S. Xpress Enterprises, Inc. (NYSE:USX) investors should be aware of an increase in activity from the world’s largest hedge funds of late. USX was in 10 hedge funds’ portfolios at the end of September. There were 8 hedge funds in our database with USX holdings at the end of the previous quarter. Our calculations also showed that USX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action encompassing U.S. Xpress Enterprises, Inc. (NYSE:USX).

What does smart money think about U.S. Xpress Enterprises, Inc. (NYSE:USX)?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in USX over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Zimmer Partners held the most valuable stake in U.S. Xpress Enterprises, Inc. (NYSE:USX), which was worth $10.8 million at the end of the third quarter. On the second spot was Scopus Asset Management which amassed $3.6 million worth of shares. Tontine Asset Management, BlueMar Capital Management, and Balyasny Asset 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 Tontine Asset Management allocated the biggest weight to U.S. Xpress Enterprises, Inc. (NYSE:USX), around 0.38% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, earmarking 0.33 percent of its 13F equity portfolio to USX.

As one would reasonably expect, some big names have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, created the largest position in U.S. Xpress Enterprises, Inc. (NYSE:USX). Scopus Asset Management had $3.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, David E. Shaw’s D E Shaw, and Paul Marshall and Ian Wace’s Marshall Wace.

Let’s now review hedge fund activity in other stocks similar to U.S. Xpress Enterprises, Inc. (NYSE:USX). We will take a look at Evofem Biosciences, Inc. (NASDAQ:EVFM), FS Bancorp, Inc. (NASDAQ:FSBW), ChromaDex Corporation (NASDAQ:CDXC), and NuCana plc (NASDAQ:NCNA). All of these stocks’ market caps are closest to USX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EVFM 4 63652 3
FSBW 5 19145 -2
CDXC 4 982 3
NCNA 6 11658 5
Average 4.75 23859 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $19 million in USX’s case. NuCana plc (NASDAQ:NCNA) is the most popular stock in this table. On the other hand Evofem Biosciences, Inc. (NASDAQ:EVFM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks U.S. Xpress Enterprises, Inc. (NYSE:USX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately USX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on USX were disappointed as the stock returned -0.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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