How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding HC2 Holdings Inc (NYSEMKT:HCHC).
Is HC2 Holdings Inc (NYSEMKT:HCHC) a buy, sell, or hold? Hedge funds are in a pessimistic mood. The number of long hedge fund bets dropped by 2 in recent months. HCHC was in 8 hedge funds’ portfolios at the end of the third quarter of 2015. There were 10 hedge funds in our database with HCHC holdings at the end of the previous quarter. At the end of this article we will also compare HCHC to other stocks including Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), Graham Corporation (NYSE:GHM), and T2 Biosystems Inc (NASDAQ:TTOO) to get a better sense of its popularity.
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Keeping this in mind, we’re going to view the new action encompassing HC2 Holdings Inc (NYSEMKT:HCHC).
How are hedge funds trading HC2 Holdings Inc (NYSEMKT:HCHC)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Sander Gerber’s Hudson Bay Capital Management has the most valuable position in HC2 Holdings Inc (NYSEMKT:HCHC), worth close to $27.6 million, comprising 1.2% of its total 13F portfolio. The second most bullish fund manager is Caspian Capital Partners, managed by Mark Weissman, Adam Cohen and David Coleto, which holds a $5.4 million position; 1.2% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions contain Dov Gertzulin’s DG Capital Management, John Orrico’s Water Island Capital and John Fichthorn’s Dialectic Capital Management.
Because HC2 Holdings Inc (NYSEMKT:HCHC) has experienced a declination in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds who sold off their entire stakes heading into Q4. At the top of the heap, Israel Englander’s Millennium Management dumped the largest stake of the 700 funds tracked by Insider Monkey, valued at close to $1 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $0.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HC2 Holdings Inc (NYSEMKT:HCHC) but similarly valued. These stocks are Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), Graham Corporation (NYSE:GHM), T2 Biosystems Inc (NASDAQ:TTOO), and Pennantpark Floating Rate Capital Ltd (NASDAQ:PFLT). This group of stocks’ market caps resemble HCHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AOSL | 7 | 25392 | 0 |
| GHM | 10 | 32180 | 0 |
| TTOO | 7 | 34965 | -3 |
| PFLT | 7 | 10003 | 5 |
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $47 million in HCHC’s case. Graham Corporation (NYSE:GHM) is the most popular stock in this table. On the other hand Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) is the least popular one with only 7 bullish hedge fund positions. HC2 Holdings Inc (NYSEMKT:HCHC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GHM might be a better candidate to consider a long position.
