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Were Hedge Funds Right About Flocking Into Clean Harbors Inc (CLH) ?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Clean Harbors Inc (NYSE:CLH) was in 23 hedge funds’ portfolios at the end of December. CLH has experienced an increase in hedge fund sentiment in recent months. There were 18 hedge funds in our database with CLH holdings at the end of the previous quarter. Our calculations also showed that CLH isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

We’re going to take a peek at the recent hedge fund action regarding Clean Harbors Inc (NYSE:CLH).

How have hedgies been trading Clean Harbors Inc (NYSE:CLH)?

At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CLH over the last 14 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

CLH_apr2019

The largest stake in Clean Harbors Inc (NYSE:CLH) was held by Renaissance Technologies, which reported holding $81.4 million worth of stock at the end of September. It was followed by Impax Asset Management with a $35.8 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Citadel Investment Group.

As industrywide interest jumped, key money managers were breaking ground themselves. 1060 Capital Management, managed by Brian Gustavson and Andrew Haley, established the biggest position in Clean Harbors Inc (NYSE:CLH). 1060 Capital Management had $13.6 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $3.3 million position during the quarter. The other funds with brand new CLH positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Joel Greenblatt’s Gotham Asset Management, and D. E. Shaw’s D E Shaw.

Let’s now review hedge fund activity in other stocks similar to Clean Harbors Inc (NYSE:CLH). These stocks are Verint Systems Inc. (NASDAQ:VRNT), Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), FS KKR Capital Corp. (NYSE:FSK), and Barnes Group Inc. (NYSE:B). This group of stocks’ market values resemble CLH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRNT 18 242649 0
AJRD 19 391598 0
FSK 20 173101 11
B 14 32255 1
Average 17.75 209901 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $236 million in CLH’s case. FS KKR Capital Corp. (NYSE:FSK) is the most popular stock in this table. On the other hand Barnes Group Inc. (NYSE:B) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Clean Harbors Inc (NYSE:CLH) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CLH as the stock returned 47.8% 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.

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