Is Comstock Mining, Inc. (LODE) Going to Burn These Hedge Funds?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Is Comstock Mining, Inc. (NYSEMKT:LODE) a buy right now? The smart money is getting less bullish. The number of bullish hedge fund positions dropped by 1 lately. It may come as a bit of a surprise, as the shares of Comstock Mining, Inc. (NYSEMKT:LODE) gained 4.27% value during the quarter. In order to understand the hedge fund sentiment, we will find out more about the hedge funds that held stakes in Comstock Mining, Inc. (NYSEMKT:LODE), at the end of September.

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 Cyren Ltd (NASDAQ:CYRN), Barington/Hilco Acquisition Corp. Common Stock (NASDAQ:BHAC), and Vringo, Inc. (NASDAQ:VRNG) to gather more data points.

To the average investor, there are a multitude of gauges stock market investors use to evaluate their holdings. Some of the most useful gauges are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best money managers can outpace the S&P 500 by a solid margin (see the details here).

Now, we’re going to take a glance at the latest action regarding Comstock Mining, Inc. (NYSEMKT:LODE).

What have hedge funds been doing with Comstock Mining, Inc. (NYSEMKT:LODE)?

Heading into Q4, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 20% from the second quarter. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Peter Franklin Palmedo’s Sun Valley Gold has the most valuable position in Comstock Mining, Inc. (NYSEMKT:LODE), worth close to $2.7 million, corresponding to 0.2% of its total 13F portfolio. The second largest stake is held by Royce & Associates, led by Chuck Royce, holding a $0.4 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Renaissance Technologies, and Ken Griffin’s Citadel Investment Group.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Solus Alternative Asset 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 here because none of the 700+ hedge funds tracked by Insider Monkey identified Comstock Mining, Inc. (NYSEMKT:LODE) as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks similar to Comstock Mining, Inc. (NYSEMKT:LODE). These stocks are Cyren Ltd (NASDAQ:CYRN), Barington/Hilco Acquisition Corp. Common Stock (NASDAQ:BHAC), Vringo, Inc. (NASDAQ:VRNG), and LRAD Corp (NASDAQ:LRAD). This group of stocks’ market caps are closest to Comstock Mining, Inc. (NYSEMKT:LODE)’s market cap.

As you can see, these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $3 million in Comstock Mining, Inc. (NYSEMKT:LODE)’s case. Cyren Ltd (NASDAQ:CYRN) is the most popular stock in this table. On the other hand, Barington/Hilco Acquisition Corp. Common Stock (NASDAQ:BHAC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks, Comstock Mining, Inc. (NYSEMKT:LODE) is even less popular than Barington/Hilco Acquisition Corp. Common Stock (NASDAQ:BHAC). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.