Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Ecology & Environment, Inc. (NASDAQ:EEI).
Hedge fund interest in Ecology & Environment, Inc. (NASDAQ:EEI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Nuverra Environmental Solutions Inc (NYSE:NES), NetSol Technologies Inc. (NASDAQ:NTWK), and Liquidia Technologies, Inc. (NASDAQ:LQDA) to gather more data points. Our calculations also showed that EEI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a glance at the key hedge fund action encompassing Ecology & Environment, Inc. (NASDAQ:EEI).
How are hedge funds trading Ecology & Environment, Inc. (NASDAQ:EEI)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 1 hedge funds with a bullish position in EEI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Thomas E. Lynch’s Mill Road Capital Management has the most valuable position in Ecology & Environment, Inc. (NASDAQ:EEI), worth close to $7 million, comprising 11.2% of its total 13F portfolio. The second largest stake is held by Harbert Management, managed by Raymond J. Harbert, which holds a $4.4 million position; 6.5% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish include David P. Cohen’s Minerva Advisors, Renaissance Technologies and . In terms of the portfolio weights assigned to each position Mill Road Capital Management allocated the biggest weight to Ecology & Environment, Inc. (NASDAQ:EEI), around 11.23% of its 13F portfolio. Harbert Management is also relatively very bullish on the stock, setting aside 6.49 percent of its 13F equity portfolio to EEI.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s check out hedge fund activity in other stocks similar to Ecology & Environment, Inc. (NASDAQ:EEI). We will take a look at Nuverra Environmental Solutions Inc (NYSE:NES), NetSol Technologies Inc. (NASDAQ:NTWK), Liquidia Technologies, Inc. (NASDAQ:LQDA), and United Bancshares Inc. (NASDAQ:UBOH). This group of stocks’ market values resemble EEI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NES | 5 | 30207 | 0 |
| NTWK | 5 | 8159 | -1 |
| LQDA | 6 | 5608 | 0 |
| UBOH | 1 | 5843 | 0 |
| Average | 4.25 | 12454 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $16 million in EEI’s case. Liquidia Technologies, Inc. (NASDAQ:LQDA) is the most popular stock in this table. On the other hand United Bancshares Inc.(NASDAQ:UBOH) is the least popular one with only 1 bullish hedge fund positions. Ecology & Environment, Inc. (NASDAQ:EEI) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EEI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EEI investors were disappointed as the stock returned -0.5% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
