Information which must be reported on 13G and 13D forms must be filed with the U.S. Securities and Exchange Commission within ten days of the event in question in most cases, which includes when a hedge fund or other money manager acquires 5% or more of a public company’s shares. These filings can offer great buying opportunities considering the evidence showing that activist targets tend to greatly outperform the broader market on aggregate. That being said, this article will discuss three moves made by several hedge funds tracked by Insider Monkey, and will also lay out the hedge fund sentiment on each of the stocks discussed.
Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spinoffs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 53 percentage points since the end of August 2012, returning 102% (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.
In a freshly-amended 13D filing with the SEC, George Hall’s Clinton Group reported owing 1.50 million shares of Pacific Mercantile Bancorp (NASDAQ:PMBC). The disclosed stake accounts for 6.6% of the company’s outstanding common stock. Clinton Group filed its first 13D form regarding the bank holding company for the Pacific Mercantile Bank back in September 2011, and the investment firm is currently discarding its position. George Hall’s firm disclosed an ownership stake of 2.08 million shares via the latest amendment to the 13D filing on the company submitted on October 1, 2015. Shares of Pacific Mercantile Bancorp (NASDAQ:PMBC) have advanced by 60% since the beginning of September 2011, so it appears that Hall’s firm has generated a good return on this investment. Just recently, the bank reported third quarter earnings per share of $0.02, compared to EPS of $0.01 reported in the second quarter of 2015 and a net loss per share of $0.02 reported in the third quarter a year ago.
It is also worth pointing out that the shares of the bank holding company are currently trading at a forward P/E ratio of 40.75, compared to the median of 17.89 for the companies included in the S&P 500 index. Hence, it seems that right now is the opportune time for Clinton Group to take some profits off the table. From our extensive database of hedge funds, Matthew Lindenbaum’s Basswood Capital was the top equity holder of Pacific Mercantile Bancorp (NASDAQ:PMBC) at the end of the second quarter.
Let’s head to the next page, where we discuss the freshly-made moves of Odey Asset Management and Whitebox Advisors.
According to an amended 13G filing, Odey Asset Management LLP, managed by Crispin Odey, currently holds an ownership stake of 930,650 shares or 5.22% in Cadiz Inc. (NASDAQ:CDZI). This is down by roughly 1.01 million shares from the hedge fund’s position disclosed through its 13F filing for the June quarter. The shares of the land and water resource development company have lost nearly 69% since the beginning of the year, mainly owing to the bad news regarding its Cadiz Water Project received at the beginning of October (read more details). It is hard to believe that the shares of Cadiz Inc. (NASDAQ:CDZI) once traded at levels above $200, but the company’s “always-questionable plan to pump groundwater out of the Mojave Desert and deliver it via a 35-mile pipeline to the Colorado Aqueduct, and thence to Southern California” did not work out as intended, according to an article written by Los Angeles Times.
In the meantime, six hedge funds tracked by Insider Monkey had the stock in their portfolios at the end of the second quarter, amassing 15.40% of the company’s shares. The number of bullish investors remained flat quarter-over-quarter, whereas the value of their investments decreased to $23.80 million from $32.28 million. Royce & Associates, founded by Chuck Royce, acquired a 122,000-share stake in Cadiz Inc. (NASDAQ:CDZI) during the June quarter.
A Schedule 13G filing disclosed that Andy Redleaf’s Whitebox Advisors LLC owns an equity stake of 1.60 million shares in Tetralogic Pharmaceuticals Corp (NASDAQ:TLOG), which accounts for 6.1% of the company’s shares. The investment firm did not disclose an equity position in the clinical-stage biopharmaceutical company as of the end of the second quarter. The biotech company that focuses on discovering and developing novel small molecule therapeutics in oncology and infectious diseases has seen its shares decline by 61% since the beginning of the year. In the meantime, Tetralogic Pharmaceuticals Corp (NASDAQ:TLOG)’s freshly-released third quarter financial results and clinical program updates did not convince investors that the company’s future is bright.
Only four hedge funds monitored by our team owned the stock at the end of the June quarter, compared to seven registered in the prior one. Even so, these hedge funds stockpiled 7.50% of the company’s outstanding shares on June 30, while the value of their investments increased to $4.07 million from $3.58 million quarter-over-quarter. Bihua Chen’s Cormorant Asset Management added a 5.0 million-share position in Tetralogic Pharmaceuticals Corp (NASDAQ:TLOG) to its portfolio during the second quarter, making it one of the largest shareholders of the company within our extensive database.