Is ARCH Stock A Buy or Sell?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Arch Resources, Inc. (NYSE:ARCH).

Is ARCH stock a buy? Prominent investors were selling. The number of long hedge fund positions fell by 2 in recent months. Arch Resources, Inc. (NYSE:ARCH) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 42. Our calculations also showed that ARCH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a glance at the recent hedge fund action encompassing Arch Resources, Inc. (NYSE:ARCH).

Do Hedge Funds Think ARCH Is A Good Stock To Buy Now?

At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the third quarter of 2020. On the other hand, there were a total of 26 hedge funds with a bullish position in ARCH 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.

Is ARCH A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Phill Gross and Robert Atchinson’s Adage Capital Management has the number one position in Arch Resources, Inc. (NYSE:ARCH), worth close to $62 million, comprising 0.1% of its total 13F portfolio. On Adage Capital Management’s heels is Jonathan Barrett and Paul Segal of Luminus Management, with a $37.3 million position; 8.7% of its 13F portfolio is allocated to the stock. Other peers that are bullish comprise Len Kipp and Xavier Majic’s Maple Rock Capital, Charles Paquelet’s Skylands Capital and Jon Bauer’s Contrarian Capital. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Arch Resources, Inc. (NYSE:ARCH), around 8.69% of its 13F portfolio. Contrarian Capital is also relatively very bullish on the stock, dishing out 4.91 percent of its 13F equity portfolio to ARCH.

Seeing as Arch Resources, Inc. (NYSE:ARCH) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that slashed their positions entirely last quarter. Interestingly, James Dondero’s Highland Capital Management dumped the biggest position of the 750 funds monitored by Insider Monkey, comprising about $15.6 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund sold off about $6.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Arch Resources, Inc. (NYSE:ARCH). These stocks are Trueblue Inc (NYSE:TBI), The First Bancshares, Inc. (MS) (NASDAQ:FBMS), Community Trust Bancorp, Inc. (NASDAQ:CTBI), El Pollo LoCo Holdings Inc (NASDAQ:LOCO), Galapagos NV (NASDAQ:GLPG), Tutor Perini Corp (NYSE:TPC), and Anterix Inc. (NASDAQ:ATEX). This group of stocks’ market valuations are closest to ARCH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TBI 16 65579 1
FBMS 9 28377 2
CTBI 11 19699 1
LOCO 8 15911 0
GLPG 12 95531 1
TPC 14 30896 1
ATEX 15 341807 -2
Average 12.1 85400 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.1 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $207 million in ARCH’s case. Trueblue Inc (NYSE:TBI) is the most popular stock in this table. On the other hand El Pollo LoCo Holdings Inc (NASDAQ:LOCO) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Arch Resources, Inc. (NYSE:ARCH) is more popular among hedge funds. Our overall hedge fund sentiment score for ARCH is 70.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Unfortunately ARCH wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ARCH were disappointed as the stock returned 10.6% since the end of the fourth quarter (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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