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Is Covanta Holding Corporation (CVA) A Good Stock To Buy?

Between June 25 and October 30th the Russell 2000 ETF (IWM) has lagged the larger S&P 500 ETF (SPY) by more than 14 percentage points as investors worry over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller cap stocks than the normal investor, and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Covanta Holding Corporation (NYSE:CVA) and see how the stock is affected by the recent hedge fund activity.

Covanta Holding Corporation was in 19 hedge funds’ portfolios at the end of the third quarter of 2015. CVA has seen no changes in hedge fund sentiment in recent months. There were also 19 hedge funds in our database with CVA holdings at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as First Industrial Realty Trust, Inc. (NYSE:FR), Heartland Payment Systems, Inc. (NYSE:HPY), and Grupo Financiero Galicia S.A. (ADR) (NASDAQ:GGAL) to gather more data points.

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In the financial world there are dozens of gauges stock market investors employ to assess stocks. A duo of the less utilized gauges are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can trounce the market by a very impressive margin (see the details here).

Now, let’s analyze the latest action encompassing Covanta Holding Corporation (NYSE:CVA).

Hedge fund activity in Covanta Holding Corporation (NYSE:CVA)

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund holdings data compiled by Insider Monkey, Levin Capital Strategies, managed by John A. Levin, holds the biggest position in Covanta Holding Corporation (NYSE:CVA). Levin Capital Strategies has a $139.3 million position in the stock, comprising 2.4% of its 13F portfolio. Sitting at the No. 2 spot is Third Avenue Management, managed by Martin Whitman, which held a $74.9 million position; the fund has 2% of its 13F portfolio invested in the stock. Remaining hedge funds that hold long positions include Thomas Bancroft’s Makaira Partners, Jim Simons’s Renaissance Technologies and Steve Pei’s Gratia Capital.

Judging by the fact that Covanta Holding Corporation (NYSE:CVA) has faced falling interest from the smart money, logic holds that there lies a certain “tier” of funds that decided to sell off their full holdings last quarter. Intriguingly, Barry Lebovits and Joshua Kuntz’s Rivulet Capital sold off the largest investment of the 700 funds followed by Insider Monkey, totaling close to $10.4 million in stock. Bernard Lambilliotte’s fund, Ecofin Ltd, also dropped its stock, about $5.9 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Covanta Holding Corporation (NYSE:CVA). We will take a look at First Industrial Realty Trust, Inc. (NYSE:FR), Heartland Payment Systems, Inc. (NYSE:HPY), Grupo Financiero Galicia S.A. (ADR) (NASDAQ:GGAL), and Hawk Corporation (NYSE:HAWK). All of these stocks’ market caps resemble CVA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FR 16 249996 1
HPY 13 200871 -1
GGAL 12 73515 -2
HAWK 28 308495 1

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $208 million.That figure was $365 millions in CVA’s case. Hawk Corporation (NYSE:HAWK) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (ADR) (NASDAQ:GGAL) is the least popular one with only 12 bullish hedge fund positions. Covanta Holding Corporation (NYSE:CVA) 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 HAWK might be a better candidate to consider a long position.

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