Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is H&E Equipment Services, Inc. (NASDAQ:HEES) a first-rate investment right now? The smart money is in a bullish mood. The number of long hedge fund bets rose by 2 lately. Our calculations also showed that HEES 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 32 percentage points since May 2014 through March 12, 2019 (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.
We’re going to take a peek at the fresh hedge fund action encompassing H&E Equipment Services, Inc. (NASDAQ:HEES).
What does the smart money think about H&E Equipment Services, Inc. (NASDAQ:HEES)?
Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in HEES a year ago. 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 H&E Equipment Services, Inc. (NASDAQ:HEES) was held by Marshall Wace LLP, which reported holding $9.7 million worth of stock at the end of December. It was followed by Buckingham Capital Management with a $7.2 million position. Other investors bullish on the company included Citadel Investment Group, SG Capital Management, and Two Sigma Advisors.
Consequently, specific money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most valuable position in H&E Equipment Services, Inc. (NASDAQ:HEES). Marshall Wace LLP had $9.7 million invested in the company at the end of the quarter. David Keidan’s Buckingham Capital Management also made a $7.2 million investment in the stock during the quarter. The following funds were also among the new HEES investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Mike Vranos’s Ellington, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as H&E Equipment Services, Inc. (NASDAQ:HEES) but similarly valued. We will take a look at Ehi Car Services Ltd (NYSE:EHIC), General American Investors, Inc. (NYSE:GAM), Malibu Boats Inc (NASDAQ:MBUU), and AdvanSix Inc. (NYSE:ASIX). 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 |
|---|---|---|---|
| EHIC | 6 | 73106 | 0 |
| GAM | 6 | 25452 | 1 |
| MBUU | 22 | 93302 | 4 |
| ASIX | 19 | 116083 | -4 |
| Average | 13.25 | 76986 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $37 million in HEES’s case. Malibu Boats Inc (NASDAQ:MBUU) is the most popular stock in this table. On the other hand Ehi Car Services Ltd (NYSE:EHIC) is the least popular one with only 6 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 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 HEES as the stock returned 45.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
