Should You Avoid Houghton Mifflin Harcourt Co (HMHC)?

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 gone over 730 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 June 28th. In this article we look at what those investors think of Houghton Mifflin Harcourt Co (NASDAQ:HMHC).

Houghton Mifflin Harcourt Co (NASDAQ:HMHC) has seen a decrease in hedge fund interest of late. HMHC was in 14 hedge funds’ portfolios at the end of June. There were 25 hedge funds in our database with HMHC positions at the end of the previous quarter. Our calculations also showed that HMHC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the latest hedge fund action regarding Houghton Mifflin Harcourt Co (NASDAQ:HMHC).

Hedge fund activity in Houghton Mifflin Harcourt Co (NASDAQ:HMHC)

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -44% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HMHC over the last 16 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Anchorage Capital 2014 Q2 Investor Letter

More specifically, Anchorage Advisors was the largest shareholder of Houghton Mifflin Harcourt Co (NASDAQ:HMHC), with a stake worth $112.1 million reported as of the end of March. Trailing Anchorage Advisors was Water Street Capital, which amassed a stake valued at $39.3 million. Freshford Capital Management, Silver Point Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Houghton Mifflin Harcourt Co (NASDAQ:HMHC) has witnessed bearish sentiment from the smart money, we can see that there exists a select few money managers that slashed their full holdings by the end of the second quarter. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the biggest position of the 750 funds watched by Insider Monkey, totaling about $5.4 million in stock, and Chuck Royce’s Royce & Associates was right behind this move, as the fund dumped about $2.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 11 funds by the end of the second quarter.

Let’s check out hedge fund activity in other stocks similar to Houghton Mifflin Harcourt Co (NASDAQ:HMHC). We will take a look at Dime Community Bancshares, Inc. (NASDAQ:DCOM), Impinj, Inc. (NASDAQ:PI), Hanmi Financial Corp (NASDAQ:HAFC), and Myers Industries, Inc. (NYSE:MYE). This group of stocks’ market caps match HMHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DCOM 9 38533 1
PI 17 188015 6
HAFC 8 34892 -4
MYE 14 112013 0
Average 12 93363 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $202 million in HMHC’s case. Impinj, Inc. (NASDAQ:PI) is the most popular stock in this table. On the other hand Hanmi Financial Corp (NASDAQ:HAFC) is the least popular one with only 8 bullish hedge fund positions. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HMHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HMHC were disappointed as the stock returned -7.5% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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