Is VG A Good Stock To Buy According To Hedge Funds?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Vonage Holdings Corp. (NASDAQ:VG) based on that data.

Is VG a good stock to buy? Vonage Holdings Corp. (NASDAQ:VG) shareholders have witnessed an increase in hedge fund sentiment lately. Vonage Holdings Corp. (NASDAQ:VG) was in 36 hedge funds’ portfolios at the end of September. The all time high for this statistic is 39. There were 30 hedge funds in our database with VG positions at the end of the second quarter. Our calculations also showed that VG 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.

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.

Christopher S. Kiper Legion Partners Asset Management

Christopher Kiper of Legion Partners Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 let’s view the latest hedge fund action surrounding Vonage Holdings Corp. (NASDAQ:VG).

Do Hedge Funds Think VG Is A Good Stock To Buy Now?

At third quarter’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in VG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Peter S. Park’s Park West Asset Management has the largest position in Vonage Holdings Corp. (NASDAQ:VG), worth close to $61.4 million, corresponding to 2.4% of its total 13F portfolio. Coming in second is Ted White and Christopher Kiper of Legion Partners Asset Management, with a $56.3 million position; the fund has 13.5% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions comprise Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Steve Cohen’s Point72 Asset Management and Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali’s Alta Park Capital. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to Vonage Holdings Corp. (NASDAQ:VG), around 13.48% of its 13F portfolio. Alta Park Capital is also relatively very bullish on the stock, designating 4.4 percent of its 13F equity portfolio to VG.

With a general bullishness amongst the heavyweights, some big names have jumped into Vonage Holdings Corp. (NASDAQ:VG) headfirst. Park West Asset Management, managed by Peter S. Park, assembled the most valuable position in Vonage Holdings Corp. (NASDAQ:VG). Park West Asset Management had $61.4 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also made a $22 million investment in the stock during the quarter. The other funds with brand new VG positions are Michel Massoud’s Melqart Asset Management, Paul Tudor Jones’s Tudor Investment Corp, and Philip Hempleman’s Ardsley Partners.

Let’s go over hedge fund activity in other stocks similar to Vonage Holdings Corp. (NASDAQ:VG). These stocks are Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), Brighthouse Financial, Inc. (NASDAQ:BHF), Acushnet Holdings Corp. (NYSE:GOLF), Option Care Health, Inc. (NASDAQ:OPCH), Evertec Inc (NYSE:EVTC), NuVasive, Inc. (NASDAQ:NUVA), and Evoqua Water Technologies Corp. (NYSE:AQUA). This group of stocks’ market values are closest to VG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HOMB 14 32750 0
BHF 26 296716 -8
GOLF 12 35383 1
OPCH 18 138384 7
EVTC 21 316649 3
NUVA 26 335263 -7
AQUA 21 216210 4
Average 19.7 195908 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $369 million in VG’s case. Brighthouse Financial, Inc. (NASDAQ:BHF) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Vonage Holdings Corp. (NASDAQ:VG) is more popular among hedge funds. Our overall hedge fund sentiment score for VG is 87.7. 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 returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on VG as the stock returned 31.4% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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