Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) was in 11 hedge funds’ portfolios at the end of September. HCCI has seen an increase in enthusiasm from smart money of late. There were 8 hedge funds in our database with HCCI holdings at the end of the previous quarter. Our calculations also showed that HCCI isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s check out the recent hedge fund action encompassing Heritage-Crystal Clean, Inc. (NASDAQ:HCCI).
What have hedge funds been doing with Heritage-Crystal Clean, Inc. (NASDAQ:HCCI)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the second quarter of 2018. By comparison, 9 hedge funds held shares or bullish call options in HCCI heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cove Street Capital held the most valuable stake in Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), which was worth $27.5 million at the end of the third quarter. On the second spot was Cannell Capital which amassed $15.8 million worth of shares. Moreover, Royce & Associates, Renaissance Technologies, and Millennium Management were also bullish on Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), allocating a large percentage of their portfolios to this stock.
Now, some big names were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the most valuable position in Heritage-Crystal Clean, Inc. (NASDAQ:HCCI). Millennium Management had $2.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $1 million position during the quarter. The only other fund with a new position in the stock is D. E. Shaw’s D E Shaw.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) but similarly valued. These stocks are Neuberger Berman MLP Income Fund Inc. (NYSE:NML), Park-Ohio Holdings Corp. (NASDAQ:PKOH), Barrett Business Services, Inc. (NASDAQ:BBSI), and Collegium Pharmaceutical Inc (NASDAQ:COLL). This group of stocks’ market values are similar to HCCI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NML | 2 | 706 | 0 |
| PKOH | 11 | 47796 | 0 |
| BBSI | 13 | 60971 | 4 |
| COLL | 15 | 103991 | -2 |
| Average | 10.25 | 53366 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $81 million in HCCI’s case. Collegium Pharmaceutical Inc (NASDAQ:COLL) is the most popular stock in this table. On the other hand 0 is the least popular one with only 2 bullish hedge fund positions. Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) 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. In this regard COLL might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
