Is Houghton Mifflin Harcourt Co (NASDAQ:HMHC) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Houghton Mifflin Harcourt Co (NASDAQ:HMHC) has experienced an increase in hedge fund interest recently. Our calculations also showed that hmhc isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a look at the recent hedge fund action surrounding Houghton Mifflin Harcourt Co (NASDAQ:HMHC).
What does the smart money think about Houghton Mifflin Harcourt Co (NASDAQ:HMHC)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 46% from the second quarter of 2018. On the other hand, there were a total of 23 hedge funds with a bullish position in HMHC a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Anchorage Advisors held the most valuable stake in Houghton Mifflin Harcourt Co (NASDAQ:HMHC), which was worth $178 million at the end of the fourth quarter. On the second spot was Water Street Capital which amassed $76.1 million worth of shares. Moreover, Royce & Associates, Millennium Management, and Nishkama Capital were also bullish on Houghton Mifflin Harcourt Co (NASDAQ:HMHC), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key hedge funds have been driving this bullishness. Nishkama Capital, managed by Ravee Mehta, established the most outsized position in Houghton Mifflin Harcourt Co (NASDAQ:HMHC). Nishkama Capital had $2.8 million invested in the company at the end of the quarter. Brian C. Freckmann’s Lyon Street Capital also initiated a $0.9 million position during the quarter. The other funds with brand new HMHC positions are Joel Greenblatt’s Gotham Asset Management, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Cliff Asness’s AQR Capital Management.
Let’s check out hedge fund activity in other stocks similar to Houghton Mifflin Harcourt Co (NASDAQ:HMHC). We will take a look at Evoqua Water Technologies Corp. (NYSE:AQUA), James River Group Holdings Ltd (NASDAQ:JRVR), CBIZ, Inc. (NYSE:CBZ), and National Western Life Group, Inc. (NASDAQ:NWLI). This group of stocks’ market valuations are similar to HMHC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AQUA | 12 | 82604 | 1 |
| JRVR | 10 | 37026 | 2 |
| CBZ | 12 | 146494 | -3 |
| NWLI | 9 | 17248 | 2 |
| Average | 10.75 | 70843 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $284 million in HMHC’s case. Evoqua Water Technologies Corp. (NYSE:AQUA) is the most popular stock in this table. On the other hand National Western Life Group, Inc. (NASDAQ:NWLI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is more popular among hedge funds. 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. Unfortunately HMHC wasn’t nearly as popular as these 15 stock and hedge funds that were betting on HMHC were disappointed as the stock returned -18.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
