Too risky for some, an exciting profit-making opportunity for others, initial public offerings (IPOs) attract diverse opinions from the investment community. IPOs tend to pop on their first day of trading amid the hype and anticipation for the stock, followed by a swoon in the days and weeks afterward. We decided to look at the second quarter IPOs which garnered the most support from the hedge fund community, and analyze how they performed on and after IPO day and what their future prospects look like going forward.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by over 60 percentage points (see the details here).
3. Univar Inc (NYSE:UNVR)
Investors with Long Positions (as of June 30): 26
Aggregate Value of Investors’ Holdings (as of June 30): $335.70 Million
Since its IPO on June 19, Univar Inc (NYSE:UNVR)’s stock price has fallen by more than 10% after a relatively successful launch. The company is responsible for distributing specialty and basic chemicals in over 150 countries around the globe. However, only 60% of Univar Inc (NYSE:UNVR)’s sales are generated in the United States, thus it is no surprise that a strengthening dollar has been inhibiting the company’s top line results lately. That is of course coupled with the turmoil in the energy markets, as some of its key clients including Exxon Mobil (NYSE:XOM) operate in that segment. In its financial results for the second quarter, Univar Inc (NYSE:UNVR) reported a net loss per share of $0.12 compared to EPS of $0.20 in the same quarter a year earlier, while revenues of $2.51 billion were also 12.3% lower on a year-over-year basis. Among the more than 700 hedge funds that we track, John Smith Clark‘s Southpoint Capital Advisors is the largest stockholder of the company, owning some 3.56 million shares valued at $92.65 million.
2. Fitbit Inc (NYSE:FIT)
Investors with Long Positions (as of June 30): 27
Aggregate Value of Investors’ Holdings (as of June 30): $249.92 Million
Even though Fitbit Inc (NYSE:FIT) launched its IPO on the very same day as Univar Inc (NYSE:UNVR), it has been subjected to a very different treatment by investors. The stock price of the $7.12 billion technology company, which provides various wearable health and fitness products, is up by nearly 16% since its IPO. Considering that it is currently trading at a forward earnings multiple of 35, it might be trading in overvalued territory at present. Recently, IDC published a report which weaves in neatly with the overvalued thesis for the company, as it cited that second quarter sales for Fitbit Inc (NYSE:FIT) in terms of the company’s market share decreased to 24.3% compared to 30.4% on a year-over-year basis, as competition from the likes of Apple Inc. (NASDAQ:AAPL) and Xiaomi has intensified. Moreover, another research firm, Argus Insights states that the market for consumer wearables is actually shrinking when compared to last year. In such a scenario, added competition in a shrinking market could really take a toll on Fitbit Inc (NYSE:FIT)’s top line. John Griffin‘s Blue Ridge Capital is the largest stockholder of Fitbit in our database, with 3.5 million shares valued at $133.81 million.
1. TransUnion (NYSE:TRU)
Investors with Long Positions (as of June 30): 29
Aggregate Value of Investors’ Holdings (as of June 30): $337.27 Million
Following its IPO in late June, TransUnion (NYSE:TRU)’s stock price is up by about 1.7%. The $4.71 billion company provides risk and information solutions to businesses and consumers. Judging by the company’s performance in the second quarter, it seems to be on the right track. Revenues for the quarter rose by 16% compared to the same quarter a year ago, while if one-time items are excluded, its EPS rose to $0.27 from $0.21. Blue Ridge Capital and Daniel S. Och‘s OZ Management are two prominent stockholders of TransUnion (NYSE:TRU), holding 3.35 million shares valued at $84.09 million and 2.88 million shares valued at $72.29 million respectively.
Disclosure: None
