Do Hedge Funds Love Clean Harbors Inc (CLH)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Clean Harbors Inc (NYSE:CLH) and determine whether hedge funds skillfully traded this stock.

Is Clean Harbors Inc (NYSE:CLH) undervalued? Money managers were taking a bearish view. The number of long hedge fund bets went down by 6 recently. Clean Harbors Inc (NYSE:CLH) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 28. Our calculations also showed that CLH isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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.

Peter Rathjens of Arrowstreet Capital

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s take a glance at the new hedge fund action encompassing Clean Harbors Inc (NYSE:CLH).

Hedge fund activity in Clean Harbors Inc (NYSE:CLH)

Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CLH over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Clean Harbors Inc (NYSE:CLH) was held by Impax Asset Management, which reported holding $77.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $76 million position. Other investors bullish on the company included 12th Street Asset Management, Arrowstreet Capital, and Lodge Hill Capital. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to Clean Harbors Inc (NYSE:CLH), around 5.4% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, setting aside 3.37 percent of its 13F equity portfolio to CLH.

Because Clean Harbors Inc (NYSE:CLH) has experienced declining sentiment from the smart money, it’s easy to see that there is a sect of funds that elected to cut their entire stakes last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management sold off the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $16.5 million in stock, and Principal Global Investors’s Columbus Circle Investors was right behind this move, as the fund sold off about $5.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 6 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Clean Harbors Inc (NYSE:CLH). These stocks are PTC Therapeutics, Inc. (NASDAQ:PTCT), Air Lease Corp (NYSE:AL), PennyMac Financial Services Inc (NYSE:PFSI), ADC Therapeutics SA (NYSE:ADCT), MasTec, Inc. (NYSE:MTZ), Colfax Corporation (NYSE:CFX), and Quaker Chemical Corp (NYSE:KWR). This group of stocks’ market caps are closest to CLH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $237 million in CLH’s case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 13 bullish hedge fund positions. Clean Harbors Inc (NYSE:CLH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CLH is 30.9. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately CLH wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CLH investors were disappointed as the stock returned -6.6% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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