Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Engility Holdings Inc (NYSE:EGL).
Engility Holdings Inc (NYSE:EGL) investors should be aware of an increase in hedge fund sentiment lately. Our calculations also showed that EGL isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Let’s take a peek at the key hedge fund action encompassing Engility Holdings Inc (NYSE:EGL).
How are hedge funds trading Engility Holdings Inc (NYSE:EGL)?
Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 55% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EGL over the last 13 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alpine Associates held the most valuable stake in Engility Holdings Inc (NYSE:EGL), which was worth $16 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $14.3 million worth of shares. Moreover, Tudor Investment Corp, Water Island Capital, and Huber Capital Management were also bullish on Engility Holdings Inc (NYSE:EGL), allocating a large percentage of their portfolios to this stock.
Consequently, some big names were leading the bulls’ herd. Alpine Associates, managed by Robert Emil Zoellner, assembled the most valuable position in Engility Holdings Inc (NYSE:EGL). Alpine Associates had $16 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $6.8 million position during the quarter. The other funds with brand new EGL positions are John Orrico’s Water Island Capital, Joe Huber’s Huber Capital Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Engility Holdings Inc (NYSE:EGL). We will take a look at Hecla Mining Company (NYSE:HL), MGP Ingredients Inc (NASDAQ:MGPI), Pitney Bowes Inc. (NYSE:PBI), and Teekay LNG Partners L.P. (NYSE:TGP). This group of stocks’ market valuations resemble EGL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HL | 11 | 17805 | -1 |
| MGPI | 11 | 46941 | 3 |
| PBI | 22 | 131743 | 2 |
| TGP | 5 | 22533 | -2 |
| Average | 12.25 | 54756 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $62 million in EGL’s case. Pitney Bowes Inc. (NYSE:PBI) is the most popular stock in this table. On the other hand Teekay LNG Partners L.P. (NYSE:TGP) is the least popular one with only 5 bullish hedge fund positions. Engility Holdings Inc (NYSE:EGL) 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. In this regard PBI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
