How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let's take a look at the recent hedge fund activity surrounding United Bankshares, Inc. (NASDAQ:UBSI) and determine whether hedge funds had an edge regarding this stock.
United Bankshares, Inc. (NASDAQ:UBSI) investors should be aware of a decrease in hedge fund sentiment lately. UBSI was in 13 hedge funds' portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with UBSI positions at the end of the previous quarter. Our calculations also showed that UBSI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
At the moment there are plenty of formulas stock market investors employ to size up publicly traded companies. A couple of the most useful formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can trounce the broader indices by a significant amount (see the details here).
[caption id="attachment_26255" align="aligncenter" width="400"] Louis Navellier of Navellier & Associates[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to view the new hedge fund action surrounding United Bankshares, Inc. (NASDAQ:UBSI).
Hedge fund activity in United Bankshares, Inc. (NASDAQ:UBSI)
Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in UBSI a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of United Bankshares, Inc. (NASDAQ:UBSI), with a stake worth $26.1 million reported as of the end of September. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $6.2 million. Basswood Capital, Renaissance Technologies, and Holocene Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to United Bankshares, Inc. (NASDAQ:UBSI), around 0.49% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to UBSI.
Because United Bankshares, Inc. (NASDAQ:UBSI) has experienced bearish sentiment from the smart money, it's easy to see that there lies a certain "tier" of money managers who were dropping their full holdings last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management dropped the biggest stake of the 750 funds watched by Insider Monkey, worth about $4.7 million in stock. Donald Sussman's fund, Paloma Partners, also said goodbye to its stock, about $3.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let's now review hedge fund activity in other stocks similar to United Bankshares, Inc. (NASDAQ:UBSI). These stocks are Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Natera Inc (NASDAQ:NTRA), Wingstop Inc (NASDAQ:WING), and Shell Midstream Partners LP (NYSE:SHLX). This group of stocks' market valuations are similar to UBSI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TARO,9,64708,-3 NTRA,32,392988,-1 WING,27,264265,3 SHLX,4,12962,-4 Average,18,183731,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $47 million in UBSI's case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 4 bullish hedge fund positions. United Bankshares, Inc. (NASDAQ:UBSI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately UBSI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UBSI investors were disappointed as the stock returned 18.5% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.
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