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 ARC Document Solutions Inc (NYSE:ARC).
Is ARC Document Solutions Inc (NYSE:ARC) a cheap investment right now? The best stock pickers are altogether becoming less hopeful. The number of long hedge fund bets shrunk by 1 lately. ARC was in 10 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with ARC holdings at the end of the previous 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 Travelzoo Inc. (NASDAQ:TZOO), Allot Communications Ltd. (NASDAQ:ALLT), and Northrim BanCorp, Inc. (NASDAQ:NRIM) to gather more data points.
Follow Arc Document Solutions Inc. (NYSE:ARC)
Follow Arc Document Solutions Inc. (NYSE:ARC)
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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What have hedge funds been doing with ARC Document Solutions Inc (NYSE:ARC)?
Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 9% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in ARC at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the largest position in ARC Document Solutions Inc (NYSE:ARC), worth close to $14.9 million. The second largest stake is Renaissance Technologies, one of the largest hedge funds in the world, with a $8.6 million position. Some other hedge funds and institutional investors that are bullish encompass D. E. Shaw’s D E Shaw, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors and John Overdeck and David Siegel’s Two Sigma Advisors. 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.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Polaris Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified ARC as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to ARC Document Solutions Inc (NYSE:ARC). We will take a look at Travelzoo Inc. (NASDAQ:TZOO), Allot Communications Ltd. (NASDAQ:ALLT), Northrim BanCorp, Inc. (NASDAQ:NRIM), and Owens Realty Mortgage Inc (NYSEMKT:ORM). This group of stocks’ market valuations match ARC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TZOO | 9 | 18512 | 3 |
| ALLT | 7 | 23432 | -1 |
| NRIM | 6 | 22505 | -1 |
| ORM | 4 | 16238 | 0 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $31 million in ARC’s case. Travelzoo Inc. (NASDAQ:TZOO) is the most popular stock in this table. On the other hand Owens Realty Mortgage Inc (NYSEMKT:ORM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks ARC Document Solutions Inc (NYSE:ARC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
