Is Heritage-Crystal Clean, Inc. (HCCI) A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Heritage-Crystal Clean, Inc. (NASDAQ:HCCI).

Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) has seen a decrease in hedge fund interest lately. Our calculations also showed that HCCI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the new hedge fund action regarding Heritage-Crystal Clean, Inc. (NASDAQ:HCCI).

How are hedge funds trading Heritage-Crystal Clean, Inc. (NASDAQ:HCCI)?

At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in HCCI a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is HCCI A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), with a stake worth $10 million reported as of the end of September. Trailing Renaissance Technologies was Cove Street Capital, which amassed a stake valued at $9.6 million. Royce & Associates, Cannell Capital, and Millennium 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 Cannell Capital allocated the biggest weight to Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), around 2.17% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, setting aside 1.96 percent of its 13F equity portfolio to HCCI.

Since Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) has faced falling interest from hedge fund managers, it’s safe to say that there were a few hedgies that decided to sell off their entire stakes by the end of the first quarter. Intriguingly, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital dropped the largest position of the 750 funds watched by Insider Monkey, worth close to $1.1 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) but similarly valued. We will take a look at Luxfer Holdings PLC (NYSE:LXFR), Forterra, Inc. (NASDAQ:FRTA), SIGA Technologies Inc. (NASDAQ:SIGA), and Antares Pharma Inc (NASDAQ:ATRS). This group of stocks’ market valuations match HCCI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LXFR 9 95544 -1
FRTA 14 38481 -1
SIGA 10 39676 -1
ATRS 20 23019 7
Average 13.25 49180 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $36 million in HCCI’s case. Antares Pharma Inc (NASDAQ:ATRS) is the most popular stock in this table. On the other hand Luxfer Holdings PLC (NYSE:LXFR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) is even less popular than LXFR. Hedge funds dodged a bullet by taking a bearish stance towards HCCI. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but managed to beat the market by 14.8 percentage points. Unfortunately HCCI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); HCCI investors were disappointed as the stock returned 1.2% during the second quarter (through June 17th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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