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Did Hedge Funds Make The Right Call On Covanta Holding Corporation (CVA) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thought Covanta Holding Corporation (NYSE:CVA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Covanta Holding Corporation (NYSE:CVA) has experienced an increase in enthusiasm from smart money recently. Our calculations also showed that CVA 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bernard Lambilliotte - Ecofin

Bernard Lambilliotte of Ecofin Ltd

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to take a look at the key hedge fund action regarding Covanta Holding Corporation (NYSE:CVA).

How have hedgies been trading Covanta Holding Corporation (NYSE:CVA)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in CVA a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Levin Capital Strategies held the most valuable stake in Covanta Holding Corporation (NYSE:CVA), which was worth $11.3 million at the end of the third quarter. On the second spot was Ecofin Ltd which amassed $11.2 million worth of shares. Renaissance Technologies, Arrowstreet Capital, and Citadel Investment Group 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 Ecofin Ltd allocated the biggest weight to Covanta Holding Corporation (NYSE:CVA), around 7.67% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, dishing out 1.82 percent of its 13F equity portfolio to CVA.

Now, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Covanta Holding Corporation (NYSE:CVA). Arrowstreet Capital had $5.5 million invested in the company at the end of the quarter. Chuck Royce’s Royce & Associates also made a $1.7 million investment in the stock during the quarter. The following funds were also among the new CVA investors: Philip Hempleman’s Ardsley Partners, D. E. Shaw’s D E Shaw, and Greg Eisner’s Engineers Gate Manager.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Covanta Holding Corporation (NYSE:CVA) but similarly valued. We will take a look at Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), Tri Continental Corporation (NYSE:TY), Victory Capital Holdings, Inc. (NASDAQ:VCTR), and Marten Transport, Ltd (NASDAQ:MRTN). This group of stocks’ market caps are similar to CVA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPBI 8 30230 -4
TY 3 2165 1
VCTR 8 64756 1
MRTN 16 46668 -1
Average 8.75 35955 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $56 million in CVA’s case. Marten Transport, Ltd (NASDAQ:MRTN) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Covanta Holding Corporation (NYSE:CVA) is more popular among hedge funds. 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 and still beat the market by 15.5 percentage points. Unfortunately CVA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CVA were disappointed as the stock returned 13.2% 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.

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