Is HCHC A Good Stock To Buy Now?

In this article we will analyze whether HC2 Holdings Inc (NYSE:HCHC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is HCHC a good stock to buy now? The smart money was taking a pessimistic view. The number of bullish hedge fund positions were trimmed by 1 in recent months. HC2 Holdings Inc (NYSE:HCHC) was in 11 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 15. Our calculations also showed that HCHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are dozens of methods stock traders can use to size up stocks. A pair of the most innovative methods are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the broader indices by a solid amount (see the details here).

Jeffrey Gendell of Tontine Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. With all of this in mind we’re going to check out the new hedge fund action encompassing HC2 Holdings Inc (NYSE:HCHC).

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

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCHC over the last 21 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in HC2 Holdings Inc (NYSE:HCHC) was held by Tontine Asset Management, which reported holding $1.4 million worth of stock at the end of September. It was followed by Driehaus Capital with a $1 million position. Other investors bullish on the company included Winton Capital Management, Renaissance Technologies, and Luxor Capital Group. In terms of the portfolio weights assigned to each position Tontine Asset Management allocated the biggest weight to HC2 Holdings Inc (NYSE:HCHC), around 0.3% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to HCHC.

Due to the fact that HC2 Holdings Inc (NYSE:HCHC) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that slashed their full holdings by the end of the third quarter. It’s worth mentioning that Bradley Louis Radoff’s Fondren Management sold off the largest investment of the 750 funds watched by Insider Monkey, valued at about $0.4 million in stock, and Andrew Wallach and Jason Ader’s Cumberland Associates / Springowl Associates was right behind this move, as the fund said goodbye to about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to HC2 Holdings Inc (NYSE:HCHC). We will take a look at 9 Meters Biopharma, Inc. (NASDAQ:NMTR), Ferroglobe PLC (NASDAQ:GSM), MTBC, Inc. (NASDAQ:MTBC), StealthGas Inc. (NASDAQ:GASS), Corvus Pharmaceuticals, Inc. (NASDAQ:CRVS), PRGX Global Inc (NASDAQ:PRGX), and Intrepid Potash, Inc. (NYSE:IPI). All of these stocks’ market caps resemble HCHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NMTR 5 21738 2
GSM 9 11679 -2
MTBC 4 7636 -2
GASS 5 44165 0
CRVS 7 52499 -2
PRGX 9 38796 -1
IPI 7 3023 -1
Average 6.6 25648 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.6 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $4 million in HCHC’s case. Ferroglobe PLC (NASDAQ:GSM) is the most popular stock in this table. On the other hand MTBC, Inc. (NASDAQ:MTBC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks HC2 Holdings Inc (NYSE:HCHC) is more popular among hedge funds. Our overall hedge fund sentiment score for HCHC is 76. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on HCHC as the stock returned 45.5% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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