Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
H&E Equipment Services, Inc. (NASDAQ:HEES) shareholders have witnessed an increase in hedge fund sentiment lately. HEES was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with HEES holdings at the end of the previous quarter. Our calculations also showed that HEES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the recent hedge fund action regarding H&E Equipment Services, Inc. (NASDAQ:HEES).
How are hedge funds trading H&E Equipment Services, Inc. (NASDAQ:HEES)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HEES over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in H&E Equipment Services, Inc. (NASDAQ:HEES) was held by SG Capital Management, which reported holding $15.7 million worth of stock at the end of September. It was followed by Marshall Wace with a $6.5 million position. Other investors bullish on the company included Millennium Management, Adage Capital Management, and Intrinsic Edge Capital. In terms of the portfolio weights assigned to each position SG Capital Management allocated the biggest weight to H&E Equipment Services, Inc. (NASDAQ:HEES), around 2.98% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.63 percent of its 13F equity portfolio to HEES.
As aggregate interest increased, some big names were breaking ground themselves. Intrinsic Edge Capital, managed by Mark Coe, initiated the largest position in H&E Equipment Services, Inc. (NASDAQ:HEES). Intrinsic Edge Capital had $5.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $3 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Jonathan Soros’s JS Capital, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as H&E Equipment Services, Inc. (NASDAQ:HEES) but similarly valued. These stocks are 2U Inc (NASDAQ:TWOU), Weis Markets, Inc. (NYSE:WMK), GreenTree Hospitality Group Ltd. (NYSE:GHG), and HEXO Corp. (NYSE:HEXO). All of these stocks’ market caps resemble HEES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TWOU | 14 | 88368 | 0 |
| WMK | 15 | 64020 | 2 |
| GHG | 7 | 23891 | 2 |
| HEXO | 7 | 9359 | 0 |
| Average | 10.75 | 46410 | 1 |
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 $46 million. That figure was $52 million in HEES’s case. Weis Markets, Inc. (NYSE:WMK) is the most popular stock in this table. On the other hand GreenTree Hospitality Group Ltd. (NYSE:GHG) is the least popular one with only 7 bullish hedge fund positions. H&E Equipment Services, Inc. (NASDAQ:HEES) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on HEES as the stock returned 15.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
