Hedge Funds Are Betting On Warrior Met Coal Inc. (HCC)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Warrior Met Coal Inc. (NYSE:HCC).

Warrior Met Coal Inc. (NYSE:HCC) has seen an increase in activity from the world’s largest hedge funds of late. Warrior Met Coal Inc. (NYSE:HCC) was in 26 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 35. Our calculations also showed that HCC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the new hedge fund action regarding Warrior Met Coal Inc. (NYSE:HCC).

Do Hedge Funds Think HCC Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in HCC a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Warrior Met Coal Inc. (NYSE:HCC), which was worth $25.7 million at the end of the fourth quarter. On the second spot was Third Avenue Management which amassed $23.7 million worth of shares. Waratah Capital Advisors, Platinum Asset Management, and Contrarius Investment Management 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 Third Avenue Management allocated the biggest weight to Warrior Met Coal Inc. (NYSE:HCC), around 3.14% of its 13F portfolio. Amitell Capital is also relatively very bullish on the stock, dishing out 2.12 percent of its 13F equity portfolio to HCC.

Consequently, key money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in Warrior Met Coal Inc. (NYSE:HCC). Balyasny Asset Management had $4.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $3.4 million investment in the stock during the quarter. The following funds were also among the new HCC investors: Todd J. Kantor’s Encompass Capital Advisors, James Dondero’s Highland Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks similar to Warrior Met Coal Inc. (NYSE:HCC). We will take a look at The Aaron’s Company, Inc. (NYSE:AAN), Kelly Services, Inc. (NASDAQ:KELYB), Partner Communications Company Ltd (NASDAQ:PTNR), Black Diamond Therapeutics, Inc. (NASDAQ:BDTX), Tenneco Inc (NYSE:TEN), Chuy’s Holdings Inc (NASDAQ:CHUY), and Cars.com Inc. (NYSE:CARS). All of these stocks’ market caps match HCC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAN 18 69074 -5
KELYB 1 234 0
PTNR 1 12725 0
BDTX 17 141069 -1
TEN 28 196401 3
CHUY 8 54348 -5
CARS 18 154447 -1
Average 13 89757 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $150 million in HCC’s case. Tenneco Inc (NYSE:TEN) is the most popular stock in this table. On the other hand Kelly Services, Inc. (NASDAQ:KELYB) is the least popular one with only 1 bullish hedge fund positions. Warrior Met Coal Inc. (NYSE:HCC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HCC is 74.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately HCC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on HCC were disappointed as the stock returned 3.4% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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