In this article you are going to find out whether hedge funds think Houston Wire & Cable Company (NASDAQ:HWCC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Hedge fund interest in Houston Wire & Cable Company (NASDAQ:HWCC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Blueknight Energy Partners L.P. (NASDAQ:BKEP), IsoRay, Inc. (NYSE:ISR), and AMCON Distributing Co. (NYSE:DIT) to gather more data points. Our calculations also showed that HWCC 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action surrounding Houston Wire & Cable Company (NASDAQ:HWCC).
Hedge fund activity in Houston Wire & Cable Company (NASDAQ:HWCC)
Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in HWCC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Houston Wire & Cable Company (NASDAQ:HWCC), worth close to $2.6 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Rutabaga Capital Management, managed by Peter Schliemann, which holds a $2.5 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Renaissance Technologies, Ali Motamed’s Invenomic Capital Management and Frederick DiSanto’s Ancora Advisors. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Houston Wire & Cable Company (NASDAQ:HWCC), around 1.47% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, designating 1.38 percent of its 13F equity portfolio to HWCC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the first quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s check out hedge fund activity in other stocks similar to Houston Wire & Cable Company (NASDAQ:HWCC). These stocks are Blueknight Energy Partners L.P. (NASDAQ:BKEP), IsoRay, Inc. (NYSE:ISR), AMCON Distributing Co. (NYSE:DIT), and Leaf Group Ltd (NYSE:LEAF). This group of stocks’ market valuations are similar to HWCC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $8 million in HWCC’s case. Leaf Group Ltd (NYSE:LEAF) is the most popular stock in this table. On the other hand Blueknight Energy Partners L.P. (NASDAQ:BKEP) is the least popular one with only 1 bullish hedge fund positions. Houston Wire & Cable Company (NASDAQ:HWCC) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on HWCC as the stock returned 42.9% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.