In this article we will check out the progression of hedge fund sentiment towards Warrior Met Coal Inc. (NYSE:HCC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Warrior Met Coal Inc. (NYSE:HCC) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. HCC was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with HCC holdings at the end of the previous quarter. Our calculations also showed that HCC 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the fresh hedge fund action surrounding Warrior Met Coal Inc. (NYSE:HCC).
What have hedge funds been doing with Warrior Met Coal Inc. (NYSE:HCC)?
At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HCC over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Warrior Met Coal Inc. (NYSE:HCC) was held by Renaissance Technologies, which reported holding $26.2 million worth of stock at the end of September. It was followed by Contrarius Investment Management with a $23.8 million position. Other investors bullish on the company included Third Avenue Management, Encompass Capital Advisors, and Platinum Asset Management. In terms of the portfolio weights assigned to each position Contrarius Investment Management allocated the biggest weight to Warrior Met Coal Inc. (NYSE:HCC), around 3.05% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 2.9 percent of its 13F equity portfolio to HCC.
Because Warrior Met Coal Inc. (NYSE:HCC) has witnessed declining sentiment from the smart money, we can see that there exists a select few hedge funds who were dropping their positions entirely by the end of the first quarter. Interestingly, Steven Tananbaum’s GoldenTree Asset Management dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $17.6 million in stock. Lee Ainslie’s fund, Maverick Capital, also cut its stock, about $4.7 million worth. These transactions are interesting, as total hedge fund interest fell by 5 funds by the end of the first quarter.
Let’s go over hedge fund activity in other stocks similar to Warrior Met Coal Inc. (NYSE:HCC). We will take a look at Vivint Solar Inc (NYSE:VSLR), P.H. Glatfelter Company (NYSE:GLT), Costamare Inc (NYSE:CMRE), and Argan, Inc. (NYSE:AGX). This group of stocks’ market values are similar to HCC’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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 $41 million. That figure was $135 million in HCC’s case. Vivint Solar Inc (NYSE:VSLR) is the most popular stock in this table. On the other hand P.H. Glatfelter Company (NYSE:GLT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Warrior Met Coal Inc. (NYSE:HCC) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on HCC as the stock returned 58.1% so far in Q2 (through June 10th) 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.
Disclosure: None. This article was originally published at Insider Monkey.