Is Houston Wire & Cable (HWCC) A Good Stock To Buy Now?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Houston Wire & Cable Company (NASDAQ:HWCC) based on that data.

Is HWCC a good stock to buy now? Hedge fund interest in Houston Wire & Cable Company (NASDAQ:HWCC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that HWCC 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). At the end of this article we will also compare HWCC to other stocks including AutoWeb, Inc. (NASDAQ:AUTO), Friedman Industries, Incorporated (NYSE:FRD), and Dawson Geophysical Company (NASDAQ:DWSN) to get a better sense of its popularity.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Chuck Royce

Chuck Royce of Royce & Associates

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. Keeping this in mind let’s view the key hedge fund action regarding Houston Wire & Cable Company (NASDAQ:HWCC).

Hedge fund activity in Houston Wire & Cable Company (NASDAQ:HWCC)

At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HWCC over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Houston Wire & Cable Company (NASDAQ:HWCC), worth close to $3 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Rutabaga Capital Management, led by Peter Schliemann, holding a $2.8 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Ali Motamed’s Invenomic Capital Management, Renaissance Technologies and Frederick DiSanto’s Ancora Advisors. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Houston Wire & Cable Company (NASDAQ:HWCC), around 1.59% of its 13F portfolio. Fondren Management is also relatively very bullish on the stock, dishing out 1.48 percent of its 13F equity portfolio to HWCC.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Roumell Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Houston Wire & Cable Company (NASDAQ:HWCC) but similarly valued. We will take a look at AutoWeb, Inc. (NASDAQ:AUTO), Friedman Industries, Incorporated (NYSE:FRD), Dawson Geophysical Company (NASDAQ:DWSN), First US Bancshares, Inc. (NASDAQ:FUSB), PainReform Ltd. (NASDAQ:PRFX), Atlantic American Corporation (NASDAQ:AAME), and Pulmatrix, Inc. (NASDAQ:PULM). This group of stocks’ market values are closest to HWCC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AUTO 3 2371 1
FRD 1 3012 0
DWSN 6 3946 0
FUSB 2 2227 0
PRFX 2 4986 2
AAME 1 111 0
PULM 5 4678 3
Average 2.9 3047 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.9 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $8 million in HWCC’s case. Dawson Geophysical Company (NASDAQ:DWSN) is the most popular stock in this table. On the other hand Friedman Industries, Incorporated (NYSE:FRD) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Houston Wire & Cable Company (NASDAQ:HWCC) is more popular among hedge funds. Our overall hedge fund sentiment score for HWCC 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 gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately HWCC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HWCC were disappointed as the stock returned 8% since the end of the third quarter (through 12/2) 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 most of these stocks already outperformed the market in 2020.

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