Hedge Funds Are Selling Warrior Met Coal Inc. (HCC)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Warrior Met Coal Inc. (NYSE:HCC) and determine whether hedge funds skillfully traded this stock.

Warrior Met Coal Inc. (NYSE:HCC) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. HCC has seen a decrease in activity from the world’s largest hedge funds in recent months. There were 24 hedge funds in our database with HCC holdings at the end of March. Our calculations also showed that HCC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Today there are a multitude of indicators investors use to assess publicly traded companies. A couple of the most innovative indicators are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top money managers can outclass the S&P 500 by a healthy margin (see the details here).

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a gander at the recent hedge fund action surrounding Warrior Met Coal Inc. (NYSE:HCC).

What does smart money think about Warrior Met Coal Inc. (NYSE:HCC)?

At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the first quarter of 2020. On the other hand, there were a total of 31 hedge funds with a bullish position in HCC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is HCC A Good Stock To Buy?

Among these funds, Contrarius Investment Management held the most valuable stake in Warrior Met Coal Inc. (NYSE:HCC), which was worth $35.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $31.2 million worth of shares. Waratah Capital Advisors, Third Avenue Management, and Platinum Asset 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 Waratah Capital Advisors allocated the biggest weight to Warrior Met Coal Inc. (NYSE:HCC), around 4.16% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, earmarking 3.85 percent of its 13F equity portfolio to HCC.

Judging by the fact that Warrior Met Coal Inc. (NYSE:HCC) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies that elected to cut their entire stakes in the second quarter. At the top of the heap, Todd J. Kantor’s Encompass Capital Advisors said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $10.1 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $4.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Warrior Met Coal Inc. (NYSE:HCC) but similarly valued. We will take a look at JinkoSolar Holding Co., Ltd. (NYSE:JKS), Benchmark Electronics, Inc. (NYSE:BHE), General American Investors Company, Inc. (NYSE:GAM), SiTime Corporation (NASDAQ:SITM), BellRing Brands, Inc. (NYSE:BRBR), Stoke Therapeutics, Inc. (NASDAQ:STOK), and Wins Finance Holdings Inc. (NASDAQ:WINS). This group of stocks’ market caps are similar to HCC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JKS 8 20107 1
BHE 14 26639 0
GAM 3 23963 -1
SITM 12 53895 9
BRBR 16 130361 1
STOK 11 158011 1
WINS 1 800 0
Average 9.3 59111 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $180 million in HCC’s case. BellRing Brands, Inc. (NYSE:BRBR) is the most popular stock in this table. On the other hand Wins Finance Holdings Inc. (NASDAQ:WINS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Warrior Met Coal Inc. (NYSE:HCC) is more popular among hedge funds. Our overall hedge fund sentiment score for HCC is 70. 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. 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 returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on HCC as the stock returned 11.3% since the end of June 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.

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