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Hedge Funds Have Never Been This Bullish On Covanta Holding Corporation (CVA)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Covanta Holding Corporation (NYSE:CVA) based on that data.

Covanta Holding Corporation (NYSE:CVA) was in 25 hedge funds’ portfolios at the end of March. CVA has experienced an increase in hedge fund sentiment in recent months. There were 19 hedge funds in our database with CVA positions at the end of the previous quarter. Our calculations also showed that CVA 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bernard Lambilliotte - Ecofin

Bernard Lambilliotte of Ecofin Ltd

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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. Keeping this in mind we’re going to take a look at the new hedge fund action regarding Covanta Holding Corporation (NYSE:CVA).

What have hedge funds been doing with Covanta Holding Corporation (NYSE:CVA)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in CVA a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Levin Capital Strategies was the largest shareholder of Covanta Holding Corporation (NYSE:CVA), with a stake worth $11.3 million reported as of the end of September. Trailing Levin Capital Strategies was Ecofin Ltd, which amassed a stake valued at $11.2 million. Renaissance Technologies, Arrowstreet Capital, and Citadel Investment Group 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 Ecofin Ltd allocated the biggest weight to Covanta Holding Corporation (NYSE:CVA), around 7.67% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, dishing out 1.82 percent of its 13F equity portfolio to CVA.

Now, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Covanta Holding Corporation (NYSE:CVA). Arrowstreet Capital had $5.5 million invested in the company at the end of the quarter. Chuck Royce’s Royce & Associates also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are Philip Hempleman’s Ardsley Partners, D. E. Shaw’s D E Shaw, and Greg Eisner’s Engineers Gate Manager.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Covanta Holding Corporation (NYSE:CVA) but similarly valued. These stocks are Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), Tri Continental Corporation (NYSE:TY), Victory Capital Holdings, Inc. (NASDAQ:VCTR), and Marten Transport, Ltd (NASDAQ:MRTN). This group of stocks’ market caps resemble CVA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPBI 8 30230 -4
TY 3 2165 1
VCTR 8 64756 1
MRTN 16 46668 -1
Average 8.75 35955 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $56 million in CVA’s case. Marten Transport, Ltd (NASDAQ:MRTN) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Covanta Holding Corporation (NYSE:CVA) 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. Unfortunately CVA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CVA were disappointed as the stock returned 14.4% during the second quarter (through June 10th) 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.