Is Universal Stainless & Alloy Products (USAP) A Good Investment Now?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) the right investment to pursue these days? Investors who are in the know were betting on the stock. The number of long hedge fund positions went up by 1 lately. Universal Stainless & Alloy Products (NASDAQ:USAP) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 10. Our calculations also showed that USAP isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a look at the fresh hedge fund action surrounding Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP).

How have hedgies been trading Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP)?

At third quarter’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in USAP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP), which was worth $5.5 million at the end of the third quarter. On the second spot was Minerva Advisors which amassed $2.3 million worth of shares. Forest Hill Capital, Ancora Advisors, and Invenomic Capital 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 Minerva Advisors allocated the biggest weight to Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP), around 1.56% of its 13F portfolio. Fondren Management is also relatively very bullish on the stock, dishing out 1.02 percent of its 13F equity portfolio to USAP.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) headfirst. Renaissance Technologies, established the largest position in Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP). Renaissance Technologies had $0.1 million invested in the company at the end of the quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) but similarly valued. These stocks are Broadwind Inc. (NASDAQ:BWEN), IZEA Worldwide Inc. (NASDAQ:IZEA), AmeriServ Financial, Inc. (NASDAQ:ASRV), Gulf Island Fabrication, Inc. (NASDAQ:GIFI), Hallmark Financial Services, Inc. (NASDAQ:HALL), LSB Industries, Inc. (NYSE:LXU), and First Seacoast Bancorp (NASDAQ:FSEA). This group of stocks’ market values match USAP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BWEN 7 5334 3
IZEA 1 22 0
ASRV 3 4529 0
GIFI 6 6449 -1
HALL 7 2053 -3
LXU 7 4494 -3
FSEA 2 208 0
Average 4.7 3298 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.7 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $10 million in USAP’s case. Broadwind Inc. (NASDAQ:BWEN) is the most popular stock in this table. On the other hand IZEA Worldwide Inc. (NASDAQ:IZEA) is the least popular one with only 1 bullish hedge fund positions. Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for USAP is 77. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on USAP as the stock returned 32.1% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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