Are Hedge Funds Really Bullish On Atlas Technical Consultants, Inc. (ATCX)?

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 Atlas Technical Consultants, Inc. (NASDAQ:ATCX) and determine whether hedge funds had an edge regarding this stock.

Atlas Technical Consultants, Inc. (NASDAQ:ATCX) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of March. At the end of this article we will also compare ATCX to other stocks including Insteel Industries Inc (NASDAQ:IIIN), Jernigan Capital Inc (NYSE:JCAP), and Nathan’s Famous, Inc. (NASDAQ:NATH) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Paul Glazer of Glazer Capital

Paul Glazer of Glazer Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action encompassing Atlas Technical Consultants, Inc. (NASDAQ:ATCX).

What have hedge funds been doing with Atlas Technical Consultants, Inc. (NASDAQ:ATCX)?

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATCX over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is ATCX A Good Stock To Buy?

The largest stake in Atlas Technical Consultants, Inc. (NASDAQ:ATCX) was held by BlueCrest Capital Mgmt., which reported holding $5.3 million worth of stock at the end of September. It was followed by Angelo Gordon & Co with a $2.6 million position. Other investors bullish on the company included Ancora Advisors, Millennium Management, and BlueCrest Capital Mgmt.. In terms of the portfolio weights assigned to each position BlueCrest Capital Mgmt. allocated the biggest weight to Atlas Technical Consultants, Inc. (NASDAQ:ATCX), around 0.37% of its 13F portfolio. Angelo Gordon & Co is also relatively very bullish on the stock, dishing out 0.19 percent of its 13F equity portfolio to ATCX.

Since Atlas Technical Consultants, Inc. (NASDAQ:ATCX) has faced a decline in interest from the aggregate hedge fund industry, we can see that there were a few money managers who were dropping their entire stakes last quarter. At the top of the heap, Paul Glazer’s Glazer Capital dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $19.7 million in stock, and John Thiessen’s Vertex One Asset Management was right behind this move, as the fund dropped about $7.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Atlas Technical Consultants, Inc. (NASDAQ:ATCX) but similarly valued. These stocks are Insteel Industries Inc (NASDAQ:IIIN), Jernigan Capital Inc (NYSE:JCAP), Nathan’s Famous, Inc. (NASDAQ:NATH), and Oil-Dri Corporation of America (NYSE:ODC). This group of stocks’ market caps are similar to ATCX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IIIN 11 20786 5
JCAP 9 22597 -2
NATH 5 31054 0
ODC 4 30530 1
Average 7.25 26242 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $11 million in ATCX’s case. Insteel Industries Inc (NASDAQ:IIIN) is the most popular stock in this table. On the other hand Oil-Dri Corporation of America (NYSE:ODC) is the least popular one with only 4 bullish hedge fund positions. Atlas Technical Consultants, Inc. (NASDAQ:ATCX) 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. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately ATCX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ATCX were disappointed as the stock returned -23.8% during the same time period 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 many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.