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Is Estre Ambiental, Inc. (ESTR) Going To Burn These Hedge Funds ?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Estre Ambiental, Inc. (NASDAQ:ESTR) makes for a good investment right now.

Hedge fund interest in Estre Ambiental, Inc. (NASDAQ:ESTR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ESTR to other stocks including Ossen Innovation Co Ltd (NASDAQ:OSN), Clearside Biomedical, Inc. (NASDAQ:CLSD), and Fuel Tech Inc. (NASDAQ:FTEK) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

YORK CAPITAL MANAGEMENT

James Dinan of York Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to review the recent hedge fund action surrounding Estre Ambiental, Inc. (NASDAQ:ESTR).

What does smart money think about Estre Ambiental, Inc. (NASDAQ:ESTR)?

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in ESTR 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 ESTR A Good Stock To Buy?

Among these funds, York Capital Management held the most valuable stake in Estre Ambiental, Inc. (NASDAQ:ESTR), which was worth $0.5 million at the end of the third quarter. On the second spot was Alyeska Investment Group which amassed $0.5 million worth of shares. Scoggin, Millennium Management, and Highbridge Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Scoggin allocated the biggest weight to Estre Ambiental, Inc. (NASDAQ:ESTR), around 0.04% of its 13F portfolio. York Capital Management is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to ESTR.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Estre Ambiental, Inc. (NASDAQ:ESTR) but similarly valued. These stocks are Ossen Innovation Co Ltd (NASDAQ:OSN), Clearside Biomedical, Inc. (NASDAQ:CLSD), Fuel Tech Inc. (NASDAQ:FTEK), and CUI Global Inc (NASDAQ:CUI). This group of stocks’ market valuations are closest to ESTR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OSN 1 152 0
CLSD 2 191 -2
FTEK 2 1133 0
CUI 2 624 1
Average 1.75 525 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.75 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in ESTR’s case. Clearside Biomedical, Inc. (NASDAQ:CLSD) is the most popular stock in this table. On the other hand Ossen Innovation Co Ltd (NASDAQ:OSN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Estre Ambiental, Inc. (NASDAQ:ESTR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ESTR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ESTR were disappointed as the stock returned -55.9% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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