Warrior Met Coal, Inc. (HCC): Hedge Funds Started Cashing Out Right Before Poor Returns

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Warrior Met Coal, Inc. (NYSE:HCC).

Is Warrior Met Coal, Inc. (NYSE:HCC) an exceptional investment right now? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets shrunk by 4 in recent months. Our calculations also showed that HCC isn’t among the 30 most popular stocks among hedge funds (see the video below). HCC was in 31 hedge funds’ portfolios at the end of the second quarter of 2019. There were 35 hedge funds in our database with HCC holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are seen as underperforming, old investment vehicles of years past. While there are greater than 8000 funds trading at present, We choose to focus on the moguls of this club, about 750 funds. Most estimates calculate that this group of people direct the majority of the smart money’s total asset base, and by monitoring their highest performing picks, Insider Monkey has revealed numerous investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Martin Whitman Third Avenue Management Marty Whitman

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. We’re going to review the fresh hedge fund action regarding Warrior Met Coal, Inc. (NYSE:HCC).

How are hedge funds trading Warrior Met Coal, Inc. (NYSE:HCC)?

At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in HCC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with HCC Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Martin Whitman’s Third Avenue Management has the largest position in Warrior Met Coal, Inc. (NYSE:HCC), worth close to $46.1 million, comprising 3.9% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $38.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Robert Bishop’s Impala Asset Management, Alex Snow’s Lansdowne Partners and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Judging by the fact that Warrior Met Coal, Inc. (NYSE:HCC) has faced bearish sentiment from the smart money, we can see that there were a few hedgies that elected to cut their entire stakes in the second quarter. At the top of the heap, John Horseman’s Horseman Capital Management cut the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth close to $17.8 million in stock, and Steven Tananbaum’s GoldenTree Asset Management was right behind this move, as the fund dumped about $9.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 funds in the second quarter.

Let’s now review hedge fund activity in other stocks similar to Warrior Met Coal, Inc. (NYSE:HCC). These stocks are EnPro Industries, Inc. (NYSE:NPO), Fresh Del Monte Produce Inc (NYSE:FDP), Hertz Global Holdings, Inc. (NYSE:HTZ), and US Ecology Inc. (NASDAQ:ECOL). All of these stocks’ market caps are similar to HCC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NPO 11 122535 -6
FDP 11 42120 -3
HTZ 30 916881 4
ECOL 5 6575 -4
Average 14.25 272028 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $392 million in HCC’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 5 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 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 HCC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HCC were disappointed as the stock returned -25.1% 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 in Q3.

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