HCI Group Inc (HCI): Are Hedge Funds Right About This Stock?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze HCI Group Inc (NYSE:HCI).

Is HCI Group Inc (NYSE:HCI) the right pick for your portfolio? The best stock pickers seem to be getting more optimistic. There were seven funds in our database with HCI holdings at the end of the third quarter. 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 Emerge Energy Services LP (NYSE:EMES), Potbelly Corp (NASDAQ:PBPB), and Cohu, Inc. (NASDAQ:COHU) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s check out the new action regarding HCI Group Inc (NYSE:HCI).

Hedge fund activity in HCI GroupInc (NYSE:HCI)

At Q3’s end, seven hedge funds tracked by Insider Monkey were long this stock, up by one from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCI over the last five quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the biggest hedge funds in the world, has the biggest position in HCI Group Inc (NYSE:HCI), worth close to $4.3 million, comprising less than 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $2.9 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Chuck Royce’s Royce & Associates and Cliff Asness’ AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Citadel Investment Group, led by Ken Griffin, initiated the most valuable position in HCI Group Inc (NYSE:HCI). Citadel Investment Group had $2.9 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $1.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as HCI Group Inc (NYSE:HCI) but similarly valued. These stocks are Emerge Energy Services LP (NYSE:EMES), Potbelly Corp (NASDAQ:PBPB), Cohu, Inc. (NASDAQ:COHU), and Tactile Systems Technology Inc (NASDAQ:TCMD). All of these stocks’ market caps are closest to HCI’s market cap.

As you can see these stocks had an average of nine hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $12 million in HCI’s case. Potbelly Corp (NASDAQ:PBPB) and Cohu, Inc. (NASDAQ:COHU) are the most popular stocks in this table. On the other hand Emerge Energy Services LP (NYSE:EMES) and Tactile Systems Technology Inc (NASDAQ:TCMD) are the least popular with only four bullish hedge fund positions. HCI Group Inc (NYSE:HCI) 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. In this regard PBPB or COHU might be better candidates to consider taking a long position in.

Disclosure: none