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Hedge Funds Losing Interest In Quest Resource Holding Corp (QRHC)

In this article you are going to find out whether hedge funds think Quest Resource Holding Corp (NASDAQ:QRHC) 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.

Is Quest Resource Holding Corp (NASDAQ:QRHC) worth your attention right now? The best stock pickers are selling. The number of bullish hedge fund bets went down by 2 lately. Our calculations also showed that QRHC 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.

Nelson Obus of Wynnefield 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 stocks recommended/scorned by legendary Bill Miller. 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 we’re going to take a glance at the fresh hedge fund action encompassing Quest Resource Holding Corp (NASDAQ:QRHC).

Hedge fund activity in Quest Resource Holding Corp (NASDAQ:QRHC)

Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in QRHC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Nelson Obus’s Wynnefield Capital has the biggest position in Quest Resource Holding Corp (NASDAQ:QRHC), worth close to $1.9 million, amounting to 1.8% of its total 13F portfolio. On Wynnefield Capital’s heels is Skylands Capital, led by Charles Paquelet, holding a $0.6 million position; 0.1% of its 13F portfolio is allocated to the company. Other peers with similar optimism encompass Mark Broach’s Manatuck Hill Partners, Renaissance Technologies and Alexander Mitchell’s Scopus Asset Management. In terms of the portfolio weights assigned to each position Wynnefield Capital allocated the biggest weight to Quest Resource Holding Corp (NASDAQ:QRHC), around 1.8% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to QRHC.

Because Quest Resource Holding Corp (NASDAQ:QRHC) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, Scott Stewart Miller’s Greenhaven Road Investment Management dumped the largest position of the 750 funds followed by Insider Monkey, worth about $0.1 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $0 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Quest Resource Holding Corp (NASDAQ:QRHC). We will take a look at Taoping Inc. (NASDAQ:TAOP), Capital Senior Living Corporation (NYSE:CSU), Ion Geophysical Corp (NYSE:IO), and Rosehill Resources Inc. (NASDAQ:ROSE). This group of stocks’ market values match QRHC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TAOP 2 209 0
CSU 6 6415 -3
IO 5 1971 -5
ROSE 4 325 1
Average 4.25 2230 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $3 million in QRHC’s case. Capital Senior Living Corporation (NYSE:CSU) is the most popular stock in this table. On the other hand Taoping Inc. (NASDAQ:TAOP) is the least popular one with only 2 bullish hedge fund positions. Quest Resource Holding Corp (NASDAQ:QRHC) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately QRHC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on QRHC were disappointed as the stock returned 13.7% during the same time period 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 many of these stocks already outperformed the market so far this year.

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