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Is Arch Coal, Inc. (ARCH) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Arch Coal, Inc. (NYSE:ARCH) in this article.

Arch Coal, Inc. (NYSE:ARCH) investors should pay attention to an increase in hedge fund sentiment lately. ARCH was in 26 hedge funds’ portfolios at the end of September. There were 24 hedge funds in our database with ARCH holdings at the end of the previous quarter. Our calculations also showed that arch isn’t among the 30 most popular stocks among hedge funds.

To most market participants, hedge funds are perceived as slow, old investment tools of yesteryear. While there are over 8,000 funds in operation today, Our experts look at the bigwigs of this group, approximately 700 funds. These investment experts manage the lion’s share of the hedge fund industry’s total asset base, and by shadowing their finest stock picks, Insider Monkey has uncovered a number of investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by 6 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.

Michael Weinstock - Monarch Alternative Capital

We’re going to take a peek at the fresh hedge fund action regarding Arch Coal, Inc. (NYSE:ARCH).

What does the smart money think about Arch Coal, Inc. (NYSE:ARCH)?

Heading into the fourth quarter of 2018, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the second quarter of 2018. By comparison, 28 hedge funds held shares or bullish call options in ARCH heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ARCH Positions

More specifically, Monarch Alternative Capital was the largest shareholder of Arch Coal, Inc. (NYSE:ARCH), with a stake worth $139.4 million reported as of the end of September. Trailing Monarch Alternative Capital was Highland Capital Management, which amassed a stake valued at $36.2 million. AQR Capital Management, Renaissance Technologies, and Skylands Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, specific money managers have jumped into Arch Coal, Inc. (NYSE:ARCH) headfirst. Horseman Capital Management, managed by John Horseman, initiated the most outsized position in Arch Coal, Inc. (NYSE:ARCH). Horseman Capital Management had $14.7 million invested in the company at the end of the quarter. Todd J. Kantor’s Encompass Capital Advisors also initiated a $10.1 million position during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Lee Ainslie’s Maverick Capital, and Jonathan Barrett and Paul Segal’s Luminus Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arch Coal, Inc. (NYSE:ARCH) but similarly valued. We will take a look at Evertec Inc (NYSE:EVTC), G1 Therapeutics, Inc. (NASDAQ:GTHX), LTC Properties Inc (NYSE:LTC), and Helios Technologies (NASDAQ:SNHY). This group of stocks’ market caps resemble ARCH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EVTC 20 194210 3
GTHX 20 132411 7
LTC 9 19503 0
SNHY 8 155782 3
Average 14.25 125477 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $379 million in ARCH’s case. Evertec Inc (NYSE:EVTC) is the most popular stock in this table. On the other hand Sun Hydraulics Corporation (NASDAQ:SNHY) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Arch Coal, Inc. (NYSE:ARCH) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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