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Do Hedge Funds Love Heritage-Crystal Clean, Inc. (HCCI)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Heritage-Crystal Clean, Inc. (NASDAQ:HCCI).

Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) has seen an increase in hedge fund interest of late. HCCI was in 12 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with HCCI holdings at the end of the previous quarter. Our calculations also showed that HCCI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Carlo Cannell

J. Carlo Cannell of Cannell Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s view the key hedge fund action surrounding Heritage-Crystal Clean, Inc. (NASDAQ:HCCI).

How have hedgies been trading Heritage-Crystal Clean, Inc. (NASDAQ:HCCI)?

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HCCI over the last 17 quarters. 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 Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) was held by Cove Street Capital, which reported holding $26.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $14.6 million position. Other investors bullish on the company included Royce & Associates, Cannell Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Cove Street Capital allocated the biggest weight to Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), around 3.67% of its 13F portfolio. Cannell Capital is also relatively very bullish on the stock, setting aside 2.59 percent of its 13F equity portfolio to HCCI.

Now, key hedge funds were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the largest position in Heritage-Crystal Clean, Inc. (NASDAQ:HCCI). Marshall Wace had $0.4 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) but similarly valued. These stocks are UP Fintech Holding Limited (NASDAQ:TIGR), Watford Holdings Ltd. (NASDAQ:WTRE), Daqo New Energy Corp (NYSE:DQ), and DXP Enterprises Inc (NASDAQ:DXPE). This group of stocks’ market valuations are similar to HCCI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TIGR 1 147 -3
WTRE 6 4622 3
DQ 10 21279 4
DXPE 9 63404 -2
Average 6.5 22363 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $68 million in HCCI’s case. Daqo New Energy Corp (NYSE:DQ) is the most popular stock in this table. On the other hand UP Fintech Holding Limited (NASDAQ:TIGR) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on HCCI as the stock returned 16.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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