Hedge Funds Have Never Been This Bullish On US Ecology Inc. (ECOL)

In this article we will check out the progression of hedge fund sentiment towards US Ecology Inc. (NASDAQ:ECOL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

US Ecology Inc. (NASDAQ:ECOL) was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. ECOL investors should be aware of an increase in hedge fund sentiment recently. There were 14 hedge funds in our database with ECOL positions at the end of the previous quarter. Our calculations also showed that ECOL 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding US Ecology Inc. (NASDAQ:ECOL).

How have hedgies been trading US Ecology Inc. (NASDAQ:ECOL)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 57% from the fourth quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in ECOL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Millennium Management held the most valuable stake in US Ecology Inc. (NASDAQ:ECOL), which was worth $43 million at the end of the third quarter. On the second spot was Cyrus Capital Partners which amassed $7.2 million worth of shares. Citadel Investment Group, Renaissance Technologies, and Fort Baker Capital 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 Stepstone Group allocated the biggest weight to US Ecology Inc. (NASDAQ:ECOL), around 6.61% of its 13F portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, dishing out 2.66 percent of its 13F equity portfolio to ECOL.

As one would reasonably expect, key hedge funds were breaking ground themselves. Renaissance Technologies, assembled the most outsized position in US Ecology Inc. (NASDAQ:ECOL). Renaissance Technologies had $6.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.5 million investment in the stock during the quarter. The other funds with brand new ECOL positions are David Park’s Headlands Capital, Jose Fernandez’s Stepstone Group, and Brandon Haley’s Holocene Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as US Ecology Inc. (NASDAQ:ECOL) but similarly valued. We will take a look at Sapiens International Corporation N.V. (NASDAQ:SPNS), Hecla Mining Company (NYSE:HL), Sirius International Insurance Group, Ltd. (NASDAQ:SG), and La-Z-Boy Incorporated (NYSE:LZB). This group of stocks’ market valuations resemble ECOL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPNS 10 32545 0
HL 15 55117 1
SG 2 1669 -2
LZB 21 40118 0
Average 12 32362 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $41 million in ECOL’s case. La-Z-Boy Incorporated (NYSE:LZB) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks US Ecology Inc. (NASDAQ:ECOL) 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 ECOL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ECOL were disappointed as the stock returned 14% 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.