Did Hedge Funds Drop The Ball On Harsco Corporation (HSC) ?

Is Harsco Corporation (NYSE:HSC) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Harsco Corporation (NYSE:HSC) investors should be aware of a decrease in hedge fund sentiment recently. HSC was in 19 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with HSC holdings at the end of the previous quarter. Our calculations also showed that hsc isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Let’s check out the fresh hedge fund action regarding Harsco Corporation (NYSE:HSC).

What does the smart money think about Harsco Corporation (NYSE:HSC)?

Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in HSC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with HSC Positions

Among these funds, Adage Capital Management held the most valuable stake in Harsco Corporation (NYSE:HSC), which was worth $35.9 million at the end of the first quarter. On the second spot was SG Capital Management which amassed $14.5 million worth of shares. Moreover, Millennium Management, D E Shaw, and Two Sigma Advisors were also bullish on Harsco Corporation (NYSE:HSC), allocating a large percentage of their portfolios to this stock.

Due to the fact that Harsco Corporation (NYSE:HSC) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of funds that elected to cut their entire stakes in the third quarter. At the top of the heap, Noam Gottesman’s GLG Partners dropped the largest position of all the hedgies tracked by Insider Monkey, totaling an estimated $3.8 million in stock. Jim Simons’s fund, Renaissance Technologies, also sold off its stock, about $3.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Harsco Corporation (NYSE:HSC). We will take a look at Hovnanian Enterprises, Inc. (NYSE:HOV), Blucora Inc (NASDAQ:BCOR), Opko Health Inc. (NASDAQ:OPK), and Dine Brands Global, Inc. (NYSE:DIN). All of these stocks’ market caps are similar to HSC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HOV 3 3359 -6
BCOR 12 137883 1
OPK 13 21755 -2
DIN 20 178449 0
Average 12 85362 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $102 million in HSC’s case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand Hovnanian Enterprises, Inc. (NYSE:HOV) is the least popular one with only 3 bullish hedge fund positions. Harsco Corporation (NYSE:HSC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on HSC as the stock returned 27.5% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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