How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding H&E Equipment Services, Inc. (NASDAQ:HEES) and determine whether hedge funds had an edge regarding this stock.
Is H&E Equipment Services, Inc. (NASDAQ:HEES) undervalued? Prominent investors were getting more optimistic. The number of long hedge fund bets rose by 2 in recent months. H&E Equipment Services, Inc. (NASDAQ:HEES) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HEES 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). There were 16 hedge funds in our database with HEES holdings at the end of March.
Video: 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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Robert Atchinson of Adage Capital Management
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. Now we’re going to take a gander at the latest hedge fund action encompassing H&E Equipment Services, Inc. (NASDAQ:HEES).
What does smart money think about H&E Equipment Services, Inc. (NASDAQ:HEES)?
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in HEES a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the most valuable position in H&E Equipment Services, Inc. (NASDAQ:HEES). Adage Capital Management has a $15.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Portolan Capital Management, led by George McCabe, holding a $6.4 million position; 0.7% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Portolan Capital Management allocated the biggest weight to H&E Equipment Services, Inc. (NASDAQ:HEES), around 0.74% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.47 percent of its 13F equity portfolio to HEES.
As industrywide interest jumped, some big names have been driving this bullishness. Portolan Capital Management, managed by George McCabe, created the biggest position in H&E Equipment Services, Inc. (NASDAQ:HEES). Portolan Capital Management had $6.4 million invested in the company at the end of the quarter. Jos Shaver’s Electron Capital Partners also initiated a $3.4 million position during the quarter. The other funds with brand new HEES positions are Renaissance Technologies, Mark Coe’s Intrinsic Edge Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as H&E Equipment Services, Inc. (NASDAQ:HEES) but similarly valued. These stocks are Abercrombie & Fitch Co. (NYSE:ANF), RPC, Inc. (NYSE:RES), NV5 Global Inc (NASDAQ:NVEE), Northern Dynasty Minerals Ltd. (NYSE:NAK), Meredith Corporation (NYSE:MDP), Pampa Energia S.A. (NYSE:PAM), and TPG RE Finance Trust, Inc. (NYSE:TRTX). This group of stocks’ market values are closest to HEES’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ANF | 34 | 185170 | 11 |
| RES | 16 | 27399 | 5 |
| NVEE | 7 | 11276 | -2 |
| NAK | 10 | 23661 | 5 |
| MDP | 20 | 174786 | 4 |
| PAM | 10 | 33729 | 3 |
| TRTX | 14 | 81771 | -3 |
| Average | 15.9 | 76827 | 3.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $57 million in HEES’s case. Abercrombie & Fitch Co. (NYSE:ANF) is the most popular stock in this table. On the other hand NV5 Global Inc (NASDAQ:NVEE) is the least popular one with only 7 bullish hedge fund positions. H&E Equipment Services, Inc. (NASDAQ:HEES) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HEES is 57.4. 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 positive signal but 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 beat the market by 19.3 percentage points. Unfortunately HEES wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HEES were disappointed as the stock returned 7.8% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
