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Did Hedge Funds Make The Right Call On US Ecology Inc. (ECOL) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards US Ecology Inc. (NASDAQ:ECOL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is US Ecology Inc. (NASDAQ:ECOL) going to take off soon? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund positions rose by 8 lately. Our calculations also showed that ECOL 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). ECOL was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with ECOL holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 let’s take a look at the fresh hedge fund action encompassing US Ecology Inc. (NASDAQ:ECOL).

How have hedgies been trading US Ecology Inc. (NASDAQ:ECOL)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 57% from the fourth quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in ECOL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in US Ecology Inc. (NASDAQ:ECOL) was held by Millennium Management, which reported holding $43 million worth of stock at the end of September. It was followed by Cyrus Capital Partners with a $7.2 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Fort Baker Capital Management. In terms of the portfolio weights assigned to each position Stepstone Group allocated the biggest weight to US Ecology Inc. (NASDAQ:ECOL), around 6.61% of its 13F portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, setting aside 2.66 percent of its 13F equity portfolio to ECOL.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Renaissance Technologies, created the most valuable position in US Ecology Inc. (NASDAQ:ECOL). Renaissance Technologies had $6.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.5 million investment in the stock during the quarter. The following funds were also among the new ECOL investors: David Park’s Headlands Capital, Jose Fernandez’s Stepstone Group, and Brandon Haley’s Holocene Advisors.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as US Ecology Inc. (NASDAQ:ECOL) but similarly valued. These stocks are Sapiens International Corporation N.V. (NASDAQ:SPNS), Hecla Mining Company (NYSE:HL), Sirius International Insurance Group, Ltd. (NASDAQ:SG), and La-Z-Boy Incorporated (NYSE:LZB). This group of stocks’ market caps are similar to ECOL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPNS 10 32545 0
HL 15 55117 1
SG 2 1669 -2
LZB 21 40118 0
Average 12 32362 -0.25

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 $32 million. That figure was $41 million in ECOL’s case. La-Z-Boy Incorporated (NYSE:LZB) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks US Ecology Inc. (NASDAQ:ECOL) 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 ECOL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ECOL were disappointed as the stock returned 11.4% 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.