Should You Avoid Incontact Inc (SAAS)?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Incontact Inc (NASDAQ:SAAS) was in 20 hedge funds’ portfolios at the end of the third quarter of 2016. SAAS has seen a decrease in hedge fund interest lately. There were 24 hedge funds in our database with SAAS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Web.com Group Inc (NASDAQ:WEB), GTT Communications Inc (NYSE:GTT), and Kindred Healthcare, Inc. (NYSE:KND) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Keeping this in mind, let’s take a glance at the recent action surrounding Incontact Inc (NASDAQ:SAAS).

How are hedge funds trading Incontact Inc (NASDAQ:SAAS)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 17% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in SAAS heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Magnetar Capital, led by Alec Litowitz and Ross Laser, holds the number one position in Incontact Inc (NASDAQ:SAAS). According to regulatory filings, the fund has a $41 million position in the stock, comprising 0.6% of its 13F portfolio. Coming in second is Alpine Associates, led by Robert Emil Zoellner, holding a $31.1 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise Paul Glazer’s Glazer Capital, Amish Mehta’s SQN Investors and Paul Marshall and Ian Wace’s Marshall Wace LLP. We should note that SQN Investors is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since Incontact Inc (NASDAQ:SAAS) has weathered a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedge funds that elected to cut their full holdings last quarter. It’s worth mentioning that Alec Litowitz and Ross Laser’s Magnetar Capital cashed in the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $40.6 million in stock, and Matthew A. Weatherbie’s Weatherbie Capital was right behind this move, as the fund said goodbye to about $6.4 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Incontact Inc (NASDAQ:SAAS) but similarly valued. These stocks are Web.com Group Inc (NASDAQ:WEB), GTT Communications Inc (NYSE:GTT), Kindred Healthcare, Inc. (NYSE:KND), and Pengrowth Energy Corp (USA) (NYSE:PGH). This group of stocks’ market valuations are closest to SAAS’s market valuation.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $200 million in SAAS’s case. Web.com Group Inc (NASDAQ:WEB) is the most popular stock in this table. On the other hand Pengrowth Energy Corp (USA) (NYSE:PGH) is the least popular one with only 7 bullish hedge fund positions. Incontact Inc (NASDAQ:SAAS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard WEB might be a better candidate to consider taking a long position in.

Disclosure: none.