At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Universal Insurance Holdings, Inc. (NYSE:UVE) makes for a good investment right now.
Is UVE a good stock to buy now? Hedge funds were becoming less hopeful. The number of long hedge fund positions decreased by 2 lately. Universal Insurance Holdings, Inc. (NYSE:UVE) was in 14 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 20. Our calculations also showed that UVE 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). There were 16 hedge funds in our database with UVE holdings at the end of June.
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 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 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.
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. Now we’re going to take a glance at the recent hedge fund action surrounding Universal Insurance Holdings, Inc. (NYSE:UVE).
Do Hedge Funds Think UVE Is A Good Stock To Buy Now?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UVE over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Universal Insurance Holdings, Inc. (NYSE:UVE) was held by Stadium Capital Management, which reported holding $8.7 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $6.3 million position. Other investors bullish on the company included D E Shaw, Renaissance Technologies, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to Universal Insurance Holdings, Inc. (NYSE:UVE), around 4.1% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, setting aside 0.22 percent of its 13F equity portfolio to UVE.
Because Universal Insurance Holdings, Inc. (NYSE:UVE) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies who sold off their positions entirely last quarter. Interestingly, David Harding’s Winton Capital Management said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, worth close to $1.7 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also said goodbye to its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Universal Insurance Holdings, Inc. (NYSE:UVE) but similarly valued. We will take a look at RPT Realty (NYSE:RPT), Koppers Holdings Inc. (NYSE:KOP), G1 Therapeutics, Inc. (NASDAQ:GTHX), Mechel PAO (NYSE:MTL), eGain Corporation (NASDAQ:EGAN), Luther Burbank Corporation (NASDAQ:LBC), and Boston Omaha Corporation (NASDAQ:BOMN). This group of stocks’ market caps match UVE’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $29 million in UVE’s case. RPT Realty (NYSE:RPT) is the most popular stock in this table. On the other hand Mechel PAO (NYSE:MTL) is the least popular one with only 3 bullish hedge fund positions. Universal Insurance Holdings, Inc. (NYSE:UVE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UVE is 63.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately UVE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UVE were disappointed as the stock returned 9.3% since the end of September (through 12/8) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.