Many of This Fundamentals-Focused Fund’s Top Picks Are Hitting Home Runs

Founded in 2009 Mark Broach‘s Connecticut-based Manatuck Hill Partners employs a quantitative approach with a focus on fundamental analysis whilst using its bottom up strategy for evaluating potential investment targets. Most of the fund’s equity picks are in micro, small and mid-cap companies. At the end of the third quarter the market value of the firm’s public equity portfolio stood at $234.56 million with 65% of that value being represented by the consumer discretionary sector. The equity portfolio was headed by Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI), Carmike Cinemas, Inc. (NASDAQ:CKEC), Primo Water Corporation (NASDAQ:PRMW), Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA), and Natural Health Trends Corp. (NASDAQ:NHTC). Let us see which of these names could still serve as smart investment ideas for a retail investor.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 80 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last three years (see more details here).

#5 Natural Health Trends Corp. (NASDAQ:NHTC)

Shares held (as of September 30): 371,300

Total Value (as of September 30): $12.13 million

Percent of Portfolio (as of September 30): 5.17%

Manatuck upped its stake in the direct-selling and e-commerce company by 26% during the September trimester. So far this year Natural Health Trends Corp. (NASDAQ:NHTC)’s stock price has appreciated by more than fourfold. In its financial results for the third quarter NHTC exploded the top line with $80.8 million in sales, marking an increment of 154% from the same period a year ago. Trading at an earnings multiple of 16.55, the stock is still relatively cheap given the growth that the company has been posting. Moreover, NHTC’s quick ratio of 1.6 is another attractive feature of the company signaling that it’s more than well-equipped to handle its short term liabilities. Jim Simons‘ elite managed futures fund Renaissance Technologies is the largest stockholder of Natural Health Trends Corp. (NASDAQ:NHTC) as it held 295,400 shares at the end of June.

 

#4 Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)

Shares held (as of September 30): 78,800

Total Value (as of September 30): $12.87 million

Percent of Portfolio (as of September 30): 5.49%

During the September quarter Manatuck’s holding in Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) remained almost unchanged. This is another one of the fund’s picks that has performed extremely well this year with share price up by more than 33% on year-to-date basis. There are quite a few catalysts for the company that signal further stock appreciation going forward. First, is the company’s e-commerce business, which grew by 43% in the June quarter as compared to last year. While e-commerce contributed 5% to the total revenue for the 2014 fiscal year, it is expected to rise to 19% by 2019. Moreover, the company’s authentic indie brands have been snatching market share from competitors like CVS Health (NYSE:CVS) and Target Corporation (NYSE:TGT) as teenagers continue to be more attracted by specialty beauty stores. Among Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s investors that we track, Stephen Mandel‘s Lone Pine Capital heads the list as it held nearly 2.34 million shares of the company at the end of June.

 

#3 Primo Water Corporation (NASDAQ:PRMW)

Shares held (as of September 30): 1.78 million

Total Value (as of September 30): $13.46 million

Percent of Portfolio (as of September 30): 5.74%

The $239.27 million provider of purified bottled water has been continuously on Manatuck’s portfolio since the first quarter of 2014. However, Primo Water Corporation (NASDAQ:PRMW)’s stock performance has never been as strong as this year as it has more than doubled in value. The company managed to beat both the top and bottom line estimates in its financial results for the first fiscal quarter ending in September as revenues of $33.86 million were $1.89 million higher than expectations while EPS of $0.05 beat the estimates by $0.01. Wynnefield Capital, which is led by Nelson Obus held almost 1.92 million shares of Primo Water Corporation (NASDAQ:PRMW) at the end of the June quarter.

 

#2 Carmike Cinemas, Inc. (NASDAQ:CKEC)

Shares held (as of September 30): 941,945

Total Value (as of September 30): $18.92 million

Percent of Portfolio (as of September 30): 8.07%

Manatuck trimmed its Carmike Cinemas, Inc. (NASDAQ:CKEC) holding by 3% during the third quarter. Shares of the motion picture exhibitor company have fallen by about 9.3% so far this year. While the company managed to beat top line estimates for the September quarter, the bottom results were below expectations as costs rose faster than revenues. However, the company did manage to deliver record operating revenue growth for the third quarter. Moreover, the company is set on its industry consolidation path and acquired Sundance Cinemas for $36 million in early October. Israel Englander‘s Millennium Management is another prominent stockholder of the company and it held about 891,300 shares of Carmike at the end of the second quarter.

 

#1 Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI)

Shares held (as of September 30): 553,300

Total Value (as of September 30): $31.18 million

Percent of Portfolio (as of September 30): 13.29%

During the July-September quarter Manatuck disposed of 32,200 shares of the $1.19 billion operator and franchiser of quick-service restaurants. The company’s stock price is down by a little over 9% so far this year, but gained some ground yesterday in after hours trading following the company’s third quarter financial results, which delivered an EPS of $0.47 coming in $0.02 higher than what analysts anticipated. Revenues of $61.1 million were, however, $0.8 million lower than expectations. The company also raised its full-year guidance for the same-store sales growth to 5%-5.5% from 4.5%-5.5%, and also the EPS range to $1.86-$1.91 from $1.85-$1.90. Renaissance Technologies held nearly 932,000 shares of Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI) at the end of June.

 

Disclosure: None