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P.A.W Capital Partners’ Top Q3 Picks Headed By Group Inc (WWWW)

P.A.W Capital Partners is a technology-focused hedge fund managed by Peter A. Wright. Before starting P.A.W. Capital in 1990, Wright worked with IBM, The Gartner Group, and was the CEO of SoundView Financial Group. The fund recently filed its 13F with the Securities and Exchange Commission (SEC) for the reporting period of June 30. According to the filing, the sector specific fund had 50% of its public equity portfolio holdings devoted to the technology sector, with the overall market value of the portfolio coming in at $99.15 million. The filing revealed that during the April-June period P.A.W Capital initiated a position in five stocks and liquidated its holdings in nine previously-held stocks. In this article we are going to analyze P.A.W Capital’s top three picks heading into the third quarter: Group Inc (NASDAQ:WWWW), Allot Communications Ltd (NASDAQ:ALLT), and Fairway Group Holdings Corp (NASDAQ:FWM).


Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 123% over the ensuing 35 months, outperforming the S&P 500 Index by nearly 66 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.

Peter A. Wright
Peter A. Wright
P.A.W. CAPITAL PARTNERS Group Inc (NASDAQ:WWWW) continued to remain P.A.W Capital’s top pick, even though the fund sold 50,000 shares of the company during the second quarter. This share sale can mostly be attributed to profit booking, as shares of Group Inc (NASDAQ:WWWW) posted a 27.8% rise during the second quarter. As of June 30, P.A.W Capital owned over 380,000 shares of Group Inc (NASDAQ:WWWW) worth $9.20 million. The fund’s stake in Group Inc (NASDAQ:WWWW) at the end of June was worth more than its stake in the company at the end of March, despite the sale of shares during the period, given the impressive stock performance. Group, Inc. provides a range of Internet services to small businesses. The $1.24 billion market cap company offers Domain Name Registration and Services, Do-It-For-Me Web Solutions, Do-It-Yourself Web Solutions, and Online Marketing Services. The company managed to beat Wall Street’s expectations by $0.03, reporting $0.60 in earnings per share for the second quarter on July 30. It posted revenue of $140 million for the period, which also topped the Street’s forecast. Ahmet Okumus‘ Okumus Fund Management remains a devoted (and happy) shareholder of Group, holding 7.78 million shares of the company as of June 30, ranking it as the fund’s top pick.

P.A.W Capital increased its stake in Allot Communications Ltd (NASDAQ:ALLT) to 660,000 shares with a value of $4.75 million at the end of the second quarter, which moved it into the second spot in the fund’s portfolio. The fund’s holding in the stock moving into the third quarter of 2015 represented 4.79% of its total portfolio value, and had been increased by 34% during the second quarter. Allot Communications Ltd. is a global provider of broadband solutions. The Company is focused on developing mobile, fixed, and enterprise networks to support the digital lifestyle. The company’s shares dropped by 32.06% during the last three months, while year-to-date it’s dropped by 43.69%. With a market cap of $667.51 million, the company had won four big contracts in April to supply its carrier-class Web Security service named Allot WebSafe Personal, though its shares began to crumble shortly after. Matthew Tewksbury‘s Stevens Capital Management is another firm that has disclosed a position in Allot Communications Ltd (NASDAQ:ALLT) as of June 30, owning 11,399 shares.

Moving on to P.A.W Capital’s third top  pick, Fairway Group Holdings Corp (NASDAQ:FWM), the fund reduced its stake in the retail sector company during the second quarter to 1.09 million shares, selling 5,000 shares during the quarter. As of June 30, P.A.W Capital’s stake in Fairway Group Holdings Corp (NASDAQ:FWM) was worth $3.86 million. The $132.01 million market cap company has established itself as a leading food retailing destination in the Greater New York City metropolitan area, with stores that emphasize an extensive selection of fresh, natural, and organic products, prepared foods and hard-to-find specialty and gourmet offerings, in additional to offering traditional groceries. Fairway is headquartered in New York, New York. In April, Pomerantz Law Firm filed a class action lawsuit against Fairway Group Holdings Corporation and certain of its officers, alleging that the defendants made materially false and misleading statements regarding the company’s business, operational, and compliance policies. The news had a severe impact on the company’s stock price, which plunged by 43% during the quarter. Thomas Claugus‘ GMT Capital built a new position of 1.06 million shares of Fairway Group during the second quarter, perhaps taking advantage of the dip to build its stake.

Disclosure: None

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