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Is Garrison Capital Inc (GARS) A Good Stock To Buy?

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 over the past few 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 hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Garrison Capital Inc (NASDAQ:GARS).

Garrison Capital Inc (NASDAQ:GARS) has experienced a decrease in hedge fund interest lately. What is even more interesting is that the shares of Garrison Capital Inc (NASDAQ:GARS) experienced a similar trading sentiment, dropping 8.67% throughout the quarter. However, the same cannot be accredited for the hedge fund behavior, and to get a better idea, we will cover hedge funds that held stake in the company, at the end of the last quarter.

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 Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), Proteon Therapeutics Inc (NASDAQ:PRTO), and Hawaiian Telcom HoldCo Inc (NASDAQ:HCOM) to gather more data points.

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If you’d ask most market participants, hedge funds are seen as underperforming, old financial vehicles of the past. While there are more than 8000 funds trading at present, Our experts hone in on the upper echelon of this group, about 700 funds. Most estimates calculate that this group of people orchestrates bulk of the hedge fund industry’s total asset base, and by monitoring their inimitable stock picks, Insider Monkey has unearthed numerous investment strategies that have historically beaten the broader indices. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, we’re going to analyze the key action regarding Garrison Capital Inc (NASDAQ:GARS).

How have hedgies been trading Garrison Capital Inc (NASDAQ:GARS)?

At the end of Q3, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 17% from the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert B. Gillam’s McKinley Capital Management has the number one position in Garrison Capital Inc (NASDAQ:GARS), worth close to $1.1 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is John Overdeck and David Siegel of Two Sigma Advisors, with a $0.9 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions include Israel Englander’s Millennium Management, Chao Ku’s Nine Chapters Capital Management, and D E Shaw.

Due to the fact that Garrison Capital Inc (NASDAQ:GARS) has faced a bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that decided to sell off their full holdings heading into Q4. It’s worth mentioning that John Fichthorn’s Dialectic Capital Management sold off the largest position of all the hedgies tracked by Insider Monkey, comprising an estimated $1 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.6 million worth of shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 fund heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Garrison Capital Inc (NASDAQ:GARS). We will take a look at Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), Proteon Therapeutics Inc (NASDAQ:PRTO), Hawaiian Telcom HoldCo Inc (NASDAQ:HCOM), and Steel Excel Inc (NASDAQ:SXCL). This group of stocks’ market valuations are similar to Garrison Capital Inc (NASDAQ:GARS)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HCCI 4 34482 0
PRTO 4 46207 0
HCOM 8 25759 1
SXCL 4 152736 3

As you can see, these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $3 million in Garrison Capital Inc (NASDAQ:GARS)’s case. Hawaiian Telcom HoldCo Inc (NASDAQ:HCOM) is the most popular stock in this table. On the other hand, Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) is the least popular one with only 4 bullish hedge fund positions. Garrison Capital Inc (NASDAQ:GARS) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Hawaiian Telcom HoldCo Inc (NASDAQ:HCOM) might be a better candidate to consider a long position.

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