Is United Community Banks Inc (UCBI) Worthy of Your Portfolio?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze United Community Banks Inc (NASDAQ:UCBI).

Is United Community Banks Inc (NASDAQ:UCBI) undervalued? Investors who are in the know seem to be getting less optimistic, as the number of long hedge fund investments among the funds tracked by Insider Monkey retreated by seven between July and September. There were 12 hedge funds in our database with UCBI positions heading into the fourth quarter. At the end of this article we will also compare UCBI to other stocks including Five Prime Therapeutics Inc (NASDAQ:FPRX), Ramco-Gershenson Properties Trust (NYSE:RPT), and Dean Foods Co (NYSE:DF) to get a better sense of its popularity.

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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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With all of this in mind, let’s review the new action encompassing United Community Banks Inc (NASDAQ:UCBI).

What does the smart money think about United Community Banks Inc (NASDAQ:UCBI)?

At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 37% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UCBI over the last five quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

UCBI Chart

Of the funds tracked by Insider Monkey, Millennium Management, one of the 10 largest hedge funds in the world, has the number one position in United Community Banks Inc (NASDAQ:UCBI), worth close to $43 million, comprising 0.1% of its total 13F portfolio. On Millennium Management’s heels is Renaissance Technologies, led by Jim Simons, holding a $32 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of D. E. Shaw’s D E Shaw, Fred Cummings’s Elizabeth Park Capital Management, and Ira Unschuld’s Brant Point Investment Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually said goodbye to their positions entirely. At the top of the heap, Porter Collins, Daniel Moses, and Vincent Daniel’s Seawolf Capital said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth about $5.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $5.2 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as United Community Banks Inc (NASDAQ:UCBI) but similarly valued. These stocks are Five Prime Therapeutics Inc (NASDAQ:FPRX), Ramco-Gershenson Properties Trust (NYSE:RPT), Dean Foods Co (NYSE:DF), and Evolent Health Inc (NYSE:EVH). This group of stocks’ market caps match UCBI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FPRX 20 216553 -2
RPT 10 62556 2
DF 20 152108 -1
EVH 14 108829 7

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $135 million, versus $106 million in UCBI’s case. Five Prime Therapeutics Inc (NASDAQ:FPRX) is the most popular stock in this table. On the other hand Ramco-Gershenson Properties Trust (NYSE:RPT) is the least popular one with only 10 bullish hedge fund positions. United Community Banks Inc (NASDAQ:UCBI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FPRX might be a better candidate to consider taking a long position in.

Disclosure: None